PRIA, Government Policy, Made Personal

Summary

Allows a tax deduction for certain cash tips that you report to the IRS. Only tips listed on IRS tip statements or reported on Form 4137 (or its replacement) count. The deduction is limited to $25,000 per year. That amount is cut by $100 for every $1,000 your modified adjusted gross income is over $150,000 ($300,000 for joint filers). You must put your Social Security number on the tax return. If you are married, you must file jointly to use the deduction. Tips counted must come from jobs that customarily got tips on or before December 31, 2024, and meet IRS rules. Cash tips include cash, charged tips, and, for employees, tips from tip-sharing plans. Tips that are not voluntary, that are negotiated, or that come from certain specified service businesses do not qualify. The IRS will issue rules to prevent people from calling other income “tips” to get the break. The deduction is not allowed for tax years beginning after December 31, 2028.

Title 26, §224

Internal Revenue Code, Source: USLM XML via OLRC

(a)In general

There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual pursuant to section 6041(d)(3), 6041A(e)(3), 6050W(f)(2), or 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor).

(b)Limitation

(1)In general

The amount allowed as a deduction under this section for any taxable year shall not exceed $25,000.

(2)Limitation based on adjusted gross income

(A)In general

The amount allowable as a deduction under subsection (a) (after application of paragraph (1)) shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).

(B)Modified adjusted gross income

For purposes of this paragraph, the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

(c)Tips received in course of trade or business

In the case of qualified tips received by an individual during any taxable year in the course of a trade or business (other than the trade or business of performing services as an employee) of such individual, such qualified tips shall be taken into account under subsection (a) only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions (other than the deduction allowed under this section) allocable to the trade or business in which such qualified tips are received by the individual for such taxable year.

(d)Qualified tips

For purposes of this section

(1) In general

(2)Exclusions

Such term shall not include any amount received by an individual unless—

(A)such amount is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor,

(B)the trade or business in the course of which the individual receives such amount is not a specified service trade or business (as defined in section 199A(d)(2)), and

(C)such other requirements as may be established by the Secretary in regulations or other guidance are satisfied.

For purposes of subparagraph (B), in the case of an individual receiving tips in the trade or business of performing services as an employee, such individual shall be treated as receiving tips in the course of a trade or business which is a specified service trade or business if the trade or business of the employer is a specified service trade or business.

(3)Cash tips

For purposes of paragraph (1), the term “cash tips” includes tips received from customers that are paid in cash or charged and, in the case of an employee, tips received under any tip-sharing arrangement.

(e)Social security number required

(1)In general

No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual’s social security number.

(2)Social security number defined

For purposes of paragraph (1), the term “social security number” shall have the meaning given such term in section 24(h)(7).

(f)Married individuals

If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

(g)Regulations

The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent reclassification of income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by this section.

(h)Termination

No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 224 was sucessively renumbered section 225, then 226, of this title by Pub. L. 119–21, title VII, §§ 70201(a), 70202(a), July 4, 2025, 139 Stat. 170, 174.

Statutory Notes and Related Subsidiaries

Effective Date

Section applicable to taxable years beginning after Dec. 31, 2024, see section 70201(j) of Pub. L. 119–21, set out as an

Effective Date

of 2025 Amendment note under section 45B of this title. Published List of Occupations Traditionally Receiving Tips Pub. L. 119–21, title VII, § 70201(h),

July 4, 2025, 139 Stat. 173, provided that: “Not later than 90 days after the date of the enactment of this Act [

July 4, 2025], the Secretary of the Treasury (or the Secretary’s delegate) shall publish a list of occupations which customarily and regularly received tips on or before

December 31, 2024, for purposes of section 224(d)(1) of the Internal Revenue Code of 1986 (as added by subsection (a)).”

§224 Qualified Tips

Summary

Title 26, §224

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Citations & Metadata