No Tax on Tips – Who is Eligible

To qualify for the tips deductions, taxpayers must be either:

• Employees who receive cash tips, or
• Self-employed taxpayers who receive cash tips.

The taxpayer must have earned the tips in a qualified occupation as specified by the IRS as customarily and regularly receiving tips.

For tax year 2026, employers and Form 1099 issuers must report a specific tipped occupation code (TTOC) and the qualified tip amount on statements furnished to the taxpayer. Only those tips earned and reported in a qualified occupation can be deducted — a TTOC of “0000” means that it is not a qualified occupation and the tips are not eligible for the tips deduction.

Qualified tips included on Form 4137 also qualify for the deduction.

Note: The tips deduction reduces Qualified Business Income (QBI) for the QBI deduction.