No Tax on Tips for Side Jobs: 2025 IRS Deduction Rules
Personal Finance Editor · 7/11/2026
Can I claim the No Tax on Tips deduction with a side job? Yes, you can claim the No Tax on Tips deduction for side jobs and freelance work if you meet the qualified tips threshold of $25,000 per year, but the deduction phases out above $150,000 Modified Adjusted Gross Income (MAGI) for single filers and $300,000 for married filing jointly, starting from tax year 2025.
What Types of Side Jobs Qualify for the No Tax on Tips Deduction?
The No Tax on Tips deduction applies to tipped occupations reported in W-2 Box 14b, including servers, bartenders, hairstylists, and ride-sharing drivers. You must report tips of $20+ per month to your employer to qualify for the deduction. Form 8027 is used by large food and beverage establishments to report tips, but it's not directly related to the No Tax on Tips deduction. According to the IRS, employers with $20,000 or more in annual tip income from any one employee must file Form 8027 (https://www.irs.gov/forms-pubs/about-form-8027).
The IRS Publication 525 explains that tipped employees must report tips of $20 or more in any calendar month to their employer by the 10th day of the following month (https://www.irs.gov/publications/p525#en_US_2022_publink1000204503). You can use IRS Form 4137 to report unreported tip income and claim the corresponding tax credit.
- Servers
- Bartenders
- Hairstylists
- Ride-sharing drivers
How Do I Claim the No Tax on Tips Deduction on My Tax Return?
You'll report the deduction on Form 4137, which is used to calculate the Social Security and Medicare taxes on unreported tip income. You'll need to complete Schedule 1 (Form 1040) to report the deduction and claim the corresponding tax credit. Consult IRS Publication 525 for detailed instructions on claiming the No Tax on Tips deduction.
For example, let's say you received $30,000 in tips from a side job in 2025, and you reported $20,000 of those tips to your employer. You can claim the No Tax on Tips deduction on Form 4137, which would reduce your federal income tax liability. However, FICA (7.65%) still applies to tips.
Here's a table summarizing the key differences between the No Tax on Tips deduction and the FICA tip credit:
| Deduction | FICA Tip Credit |
|---|---|
| Reduces federal income tax only | Reduces FICA taxes on tips |
| No Tax on Tips deduction applies to tax years 2025–2028 | FICA tip credit applies to tax years 2025–2028 |
| Phases out above $150,000 MAGI for single filers and $300,000 for married filing jointly | No phase-out limit |
Key takeaways
- The No Tax on Tips deduction applies to tax years 2025–2028 and phases out above $150,000 MAGI for single filers and $300,000 for married filing jointly.
- You must report tips of $20+ per month to your employer to qualify for the deduction.
- Form 4137 is used to report the No Tax on Tips deduction and claim the corresponding tax credit.
Consult a Tax Professional
- The No Tax on Tips deduction and the FICA tip credit have different eligibility requirements and benefits.
- Consult a tax professional to determine which option is best for your situation.
The information provided in this article is for informational purposes only and should not be considered tax advice. You should consult the IRS and a tax professional to ensure compliance with tax laws and regulations.
Can I claim the No Tax on Tips deduction with a side job?
Yes, you can claim the No Tax on Tips deduction for side jobs and freelance work if you meet the qualified tips threshold of $25,000 per year, but the deduction phases out above $150,000 Modified Adjusted Gross Income (MAGI) for single filers and $300,000 for married filing jointly, starting from tax year 2025.
What types of side jobs qualify for the No Tax on Tips deduction?
The No Tax on Tips deduction applies to tipped occupations reported in W-2 Box 14b, including servers, bartenders, hairstylists, and ride-sharing drivers. You must report tips of $20+ per month to your employer to qualify for the deduction.
How do I claim the No Tax on Tips deduction on my tax return?
You'll report the deduction on Form 4137, which is used to calculate the Social Security and Medicare taxes on unreported tip income. You'll need to complete Schedule 1 (Form 1040) to report the deduction and claim the corresponding tax credit.