Deduct Business Expenses from Tips on Your Tax Return in 2025
Personal Finance Editor · 7/9/2026
You can deduct business expenses from tips on your tax return in 2025, but only if you keep accurate records of tip income and expenses. The No Tax on Tips deduction, a new tax law effective for tax years 2025–2028, reduces federal income tax only, and does not exempt tips from FICA (7.65%).
Can I Deduct Business Expenses from My Tip Income?
To deduct business expenses from tips, you must report your tip income and business expenses on Form 4137. You can also attach supporting documentation, such as receipts and invoices. The IRS website provides detailed guidance on deducting business expenses from tips, so it's essential to consult the website for more information.
- To keep accurate records of tip income and expenses
- To report tip income and business expenses on Form 4137
- To attach supporting documentation
It's crucial to note that the No Tax on Tips deduction only reduces federal income tax and does not exempt tips from FICA (7.65%). Therefore, you must still pay FICA taxes on your tip income.
What Expenses Can I Deduct from My Tip Income?
Common deductions for tipped workers include uniforms, meal expenses, and travel costs. You can also deduct expenses for equipment, supplies, and professional fees. For example, a server may deduct the cost of a uniform and the expenses of traveling to and from work.
| Expense Type | Maximum Deduction |
|---|---|
| Uniforms | $1,000 |
| Meal Expenses | $25 per day |
| Travel Costs | Actual costs |
To support your deductions, keep receipts and records of your expenses. You can also consult the IRS website for more information on what expenses are deductible.
How Do I Report Business Expenses from Tips on My Tax Return?
To report business expenses from tips on your tax return, use Form 4137 to report unreported tip income and business expenses. Attach supporting documentation, such as receipts and invoices, to Form 4137. If you're a large food or beverage establishment, complete Form 8027 to report tip income.
Form 4137 is used to report unreported tip income and business expenses. You can also attach supporting documentation to Form 4137.
Form 8027 is used to report tip income for large food and beverage establishments. For example, a restaurant with 10 or more employees may need to complete Form 8027 to report tip income.
Do I Need to Report Tip Income to My Employer?
Yes, you must report tip income of $20+ per month per employer to your employer. Your employer will report tip income in W-2 Box 14b using Treasury Tipped Occupation Codes (TTOC).
The IRS requires employers to report tip income in W-2 Box 14b using Treasury Tipped Occupation Codes (TTOC). This helps ensure that tipped workers are accurately reporting their tip income.
The Treasury Department provides Treasury Tipped Occupation Codes (TTOC) for reporting tip income in W-2 Box 14b.
Key Takeaways and Next Steps
Key takeaways
- To keep accurate records of tip income and expenses
- To report tip income and business expenses on Form 4137
- To attach supporting documentation
- To complete Form 8027 if you're a large food or beverage establishment
- To report tip income in W-2 Box 14b using Treasury Tipped Occupation Codes (TTOC)
What is the No Tax on Tips deduction?
The No Tax on Tips deduction is a new tax law effective for tax years 2025–2028, which reduces federal income tax only and does not exempt tips from FICA (7.65%).
How do I qualify for the No Tax on Tips deduction?
To qualify for the No Tax on Tips deduction, you must report your tip income and business expenses on Form 4137 and attach supporting documentation.
If you're unsure about deducting business expenses from tips, consider consulting a tax professional for personalized advice.
For more information on the No Tax on Tips deduction and other tax topics, consult the IRS website at https://www.irs.gov/ and the Treasury Department website at https://home.treasury.gov/.
Keep accurate records of your tip income and expenses, and consult the IRS website for more information on deducting business expenses from tips.