What it does
Tips still count as income. You report them with the rest of your gig pay.
Then the tips deduction takes them back off before income tax is worked out, up to $25,000 a year.
It does not lower self-employment tax. That 15.3% still applies to the profit from your tips.
Who can use it
People in jobs where customers usually tip. Rideshare and delivery drivers are on the IRS list.
You need a Social Security number that is valid for work.
Married people have to file a joint return to use it.
Only tips customers chose to give count. Fees, service charges and pay from the app don’t.
The income limit for 2026
The deduction gets smaller once your income passes $150,000, or $300,000 for a joint return. It drops by $100 for each $1,000 over.
Most new drivers are far below that, so they can take the full amount of their tips, up to $25,000.
How to claim it
It goes on Schedule 1-A, a new page of the tax return. Tax software asks for your tips and works it out.
Keep a record of your tips. Most apps show tips apart from base pay in your pay history.
What it means for your set-aside
Because it lowers income tax, a driver with a lot of tips can set aside a little less of each payout. Self-employment tax is the same either way.
The free calculator and Tax Pit Stop both count it when you add your tips and say they qualify.
Figures for 2026, from IRS documents. Tax rules change, so check the year at the top.
Work out your own number
The free calculator shows how much of each payout to set aside for your year, with the math. No sign-up.
Open the calculator