No Tax on Tips
Beginning this tax season, individuals who earn tips may qualify for a new tax deduction on qualified tip income. The maximum annual deduction is $25,000. The deduction phases out for taxpayers with modified adjusted gross income exceeding $150,000, or $300,000 for married taxpayers filing jointly.
Qualified tips are voluntary cash or charged tips received from customers or through tip sharing.
Non-qualified tips include some service charges and automatic gratuities. For example, a 20% charge is automatically added to large parties that is later distributed to staff. If the charge is added with no option for the customer to modify it, the amounts distributed to the workers from it aren't qualified tips.
Tipped employees can start by checking their form W-2, box 7 for the amount of their wages earned through tips. Check with your employer for more details about qualified versus non-qualified tips.
