26 U.S.C. § 224 — Qualified tips

submitted 1 year ago by Pub. L. 119-21 to r/title-26-INTERNAL-REVENUE-CODE · 665 words · no verdicts yet

in plain englishAI-generated · not legal advice

Workers can deduct qualified cash tips reported on their tax forms, up to $25,000 a year, though the deduction shrinks as income rises above $150,000 ($300,000 for joint filers). Tips only qualify if paid voluntarily, not negotiated, and not earned in a specified service trade or business. The deduction requires a Social Security number, applies only to joint returns for married taxpayers, and ends after 2028.

(a) In general. You can deduct the amount of "qualified tips" you got during the year, as long as they are shown on a statement given to you under specific tax code sections, or reported by you on Form 4137 or its successor. (b) Limitation. (1) In general. Your deduction under this section cannot be more than $25,000 for the year. (2) Limitation based on adjusted gross income. (A) In general. After applying the $25,000 cap, your deduction shrinks by $100 for every $1,000 your "modified adjusted gross income" is above $150,000 ($300,000 if you file a joint return) - but it never goes below zero. (B) Modified adjusted gross income. This means your adjusted gross income for the year, plus any income you excluded under section 911, 931, or 933. (c) Tips received in course of trade or business. If you got qualified tips while running your own trade or business (not as an employee), you can only count those tips under subsection (a) to the extent your gross income from that business (including the tips) is more than your other deductions for that business. (d) Qualified tips. (1) In general. "Qualified tips" means cash tips you got in an occupation that, as of December 31, 2024, customarily and regularly received tips, as the Secretary determines. (2) Exclusions. A tip does not count unless: it was paid voluntarily, with no penalty for not paying it, was not negotiated, and the payer decided the amount; the business where you got it is not a "specified service trade or business" (as section 199A(d)(2) defines it); and any other requirements the Secretary sets are met. If you are an employee, and your employer's business is a specified service trade or business, then your tips are treated as coming from a specified service trade or business too. (3) Cash tips. This includes tips paid in cash or charged, and, for an employee, tips received through a tip-sharing arrangement. (e) Social security number required. (1) In general. You cannot take this deduction unless you put your Social Security number on your tax return. (2) Social security number defined. This has the same meaning as in section 24(h)(7). (f) Married individuals. If you are married, you can only take this deduction if you and your spouse file a joint return. (g) Regulations. The Secretary must issue regulations or guidance to stop people from disguising other income as qualified tips, and to prevent abuse of this deduction generally. (h) Termination. This deduction is not available for any tax year beginning after December 31, 2028.

the actual law source: uscode.house.gov ↗public domain

(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.

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

The term “qualified tips” means cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary.

(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.

Source credit: (Added Pub. L. 119–21, title VII, § 70201(a), July 4, 2025, 139 Stat. 170.)

history & why it existsrecord from the source credit

2025Enacted · Pub. L. 119-21 · 139 Stat. 170

A history note hasn’t been published yet. The record shows enactment by Pub. L. 119-21 on 2025-07-04.

all 0 arguments · sorted by: best

no arguments yet — make the first case