No — bonuses do not qualify for the No Tax on Tips deduction. The deduction covers qualified tips only: voluntary amounts customers leave you, up to $25,000 per year for tax years 2025–2028, claimed on Schedule 1-A (Form 1040). A bonus is employer-paid wages in W-2 Box 1 and stays fully taxable. Here is exactly where the line falls.
Does No Tax on Tips Include Bonuses? Quick Answer: No
The No Tax on Tips deduction (2025–2028) reaches only qualified tips: voluntary cash, credit/debit card, app-based, and gift-card tips, plus tips received through tip sharing or pooling, in an occupation on the Treasury Tipped Occupation Codes (TTOC) list. A bonus is none of those things. It is employer-paid compensation, reported as wages in Form W-2 Box 1 and taxed at ordinary income-tax rates with no deduction. Mandatory service charges and auto-gratuities are also wages, not tips, under Rev. Rul. 2012-18 — so an automatic 20% service charge on a large party does not qualify either, no matter how tip-like it feels.
What Is the No Tax on Tips Deduction?
It is a deduction — not an exclusion, and not a special 0% tax rate. It lowers your taxable income; it does not change your bracket or create a separate tip tax rate. You claim up to $25,000 of qualified tips per year on Schedule 1-A (Form 1040), whether or not you itemize.
- Available for tax years 2025 through 2028 only.
- Phases out once your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if married filing jointly.
- Requires a valid Social Security number; married taxpayers must file jointly to claim it.
- Only tips from occupations on the Treasury TTOC list — occupations customarily tipped on or before December 31, 2024 — qualify.
- It reduces federal income tax only. The 7.65% employee FICA share (Social Security and Medicare) still applies to all tips.
- Self-employed workers can claim it, but the deduction is capped at the net income of the tipped business.
The deduction is real and in effect now — you can claim it on your 2025 return. It is narrower than the headlines suggest, though: it saves you your marginal tax rate times the deduction, not a full exemption. The IRS explains the current rules and the TTOC list on irs.gov — check the IRS No Tax on Tips page before filing, since guidance is still evolving.
Tips vs. Bonuses vs. Service Charges: What Qualifies and What Doesn't
| Payment type | Counts as a qualified tip? | Where it shows up on your W-2 | Tax treatment |
|---|---|---|---|
| Voluntary cash tip from a customer | Yes | Boxes 1, 5, and 7; also Box 12 code TP (2026 W-2s) | Eligible for up to $25,000 deduction |
| Credit/debit card or app tip | Yes | Boxes 1, 5, and 7; Box 12 code TP | Eligible for the deduction |
| Tips received via tip pool/tip sharing | Yes | Boxes 1, 5, and 7 | Eligible for the deduction |
| Performance or holiday bonus from employer | No | Box 1 (wages) | Ordinary income, no deduction |
| Mandatory service charge / auto-gratuity | No | Box 1 (wages) per Rev. Rul. 2012-18 | Ordinary income, no deduction |
| Allocated tips | Report on Form 4137 | Box 8 only | Taxable income; generally must be reported unless your records show you received less |
Starting with 2026 Forms W-2, Box 12 code TP reports the total cash tips you reported to your employer, and Box 14b shows up to two three-digit TTOC codes (for example, 101 Bartenders) — plus code 000 if any tips came from a non-qualifying occupation. Bonuses never appear in Box 12 code TP or Box 14b; they are simply wages in Box 1. Tips you did not report to your employer, or allocated tips in Box 8, go on Form 4137 with your Form 1040. W-2 box details: irs.gov/forms-pubs/about-form-w-2.
Worked example: $30,000 tips plus a $1,500 bonus
Maria, a bartender (TTOC 101), earned $30,000 in reported tips and a $1,500 holiday bonus in 2025, with MAGI well under $150,000. Her deduction is capped at $25,000 — the extra $5,000 of tips is fully taxable, and the $1,500 bonus gets no deduction at all. In the 22% bracket, the deduction saves her $25,000 × 22% = $5,500 in federal income tax. She still owes the 7.65% employee FICA share on all $30,000 of tips (about $2,295) plus FICA on the bonus, because the deduction never touches Social Security or Medicare tax.
Is No Tax on Tips Permanent? Does It Expire?
It expires. The deduction covers tax years 2025 through 2028 only; unless Congress extends it, it disappears after the 2028 tax year. The TTOC list can also change: the June 28, 2026 update added codes such as 509 Visual artists, 510 Floral designers, and 810 Gas pump attendant, bringing the list to 71 codes in 8 categories. Check the current list each year at irs.gov before you claim.
FAQ: No Tax on Tips and Bonuses
What does no tax on tips mean for me?
Up to $25,000 of your qualified tips come off your taxable income on Schedule 1-A (Form 1040) for tax years 2025–2028, if your MAGI is under $150,000 ($300,000 joint) and your occupation is on the TTOC list. It has zero effect on bonuses, which stay fully taxable wages in Box 1.
Are bonuses taxed like tips?
Both are taxed at ordinary income-tax brackets — there is no special tip tax rate. The difference is eligibility: voluntary customer tips may qualify for the deduction, while bonuses, mandatory service charges, and auto-gratuities never do. Both carry the 7.65% employee FICA share.
Do I still pay taxes on tips at all?
Yes. The deduction only reduces federal income tax. You still pay the 7.65% employee share of Social Security and Medicare on every tip, and tips above the $25,000 cap are fully taxable. Tips you never reported to your employer go on Form 4137 with your Form 1040.
What if my employer gives me a 'tip bonus'?
It does not qualify, regardless of the label. Employer-paid amounts are wages reported in W-2 Box 1. Only voluntary amounts from customers — cash, card, app, or tip-pool tips — count as qualified tips. See IRS Publication 531 (irs.gov/publications/p531) for the tip-vs-wage rules.
Do I have to report tips to my employer to claim the deduction?
You should. Report cash tips of $20 or more in a month to your employer in a signed written statement by the 10th of the following month. Not reporting can cost you a penalty of 50% of the Social Security and Medicare tax owed on those tips, per Publication 531.
This article is informational only and is not tax, legal, or accounting advice. Rules for the No Tax on Tips deduction are still being finalized — confirm current requirements with the IRS at irs.gov or a licensed tax professional before filing.