Overview

Notice 2025-69 provides guidance for taxpayers who are eligible for the federal income tax deduction for qualified tips (the "no tax on tips" provision discussed in section 70201 of the new tax bill). For 2025, employers and payors are not required to separately report or account for qualified tips on the Form W-2, 1099-NEC, 1099-MISC, or 1099-K that is provided (however, employers/payors may provide this information in a statement).

Qualified tips must: 

• be cash or charged tips received in an occupation that customarily and regularly received tips before 12/31/2024.

  • See the proposed rule document that discusses occupations that customarily and regularly received tips.

• be voluntary, not negotiated or required in advance, and determined by the payor.

  • Mandatory service charges or automatic gratuities added by a business do not qualify.

• not be received in the course of a trade or business that is a specified service trade or business (SSTB).

The deduction: 

• is up to $25,000 (per return).

• can be claimed by both itemizing and non-itemizing taxpayers.

• is not available for taxpayers who file Married Filing Separately (MFS).

• is subject to a MAGI phase-out starting at $150,000 ($300,000 MFJ).

For more information, see the IRS Info page.

Data Entry

Screen 1A can be used to override amounts from: 

• screen W2, box 7

• Form 4137, line 1, row A, column (c)

Line 4c is an override field that can be used when a special calculation is required (such as having qualified tips from more than one employer).

Qualified tips that were received in the course of a trade or business, are entered on screen 1A, line 5. This is a direct entry field that does not flow from any other screen or form.

Related Links

Drake Tax - Schedule 1-A: Additional Deductions