Confession: I’ve Been Tracking My Tips on Napkins. Here’s a Better Way

Key takeaways

• Eligible employees may be able to deduct up to $25,000 of qualified tips on their federal tax return. 
• You may find your amount of eligible tips on your tax forms.
• “No tax on tips” is a deduction, which does not mean your tips are tax free. 

The 2025 tax year might be the first time I’ve ever felt excited about tips showing up as income.

Usually, tips are taxed just like the rest of your paycheck. But thanks to a new no tax on tips deduction created by the One Big Beautiful Bill, reporting your tips could actually help lower your federal taxable income.

The catch? You’ve got to know how much you made in tips. 

If your tip tracking system has ever involved a napkin or mental note, you’re not alone. This year, having an accurate record can make a real difference at tax time.

Why track your tips

The no tax on tips deduction is new for the 2025 tax season. If you work in a qualifying job that earns “customary and regular” tips, like a server, bartender, or concierge — you may be able to deduct up to $12,500 in reported tips from your taxable income ($25,000 if you’re married and filing jointly.) 

So, if you made $65,000 as a server in 2025 and $10,000 came from tips, tracking those tips could lower your taxable income to $55,000.

If you don’t track your tips, you won’t be able to deduct them on your federal tax return. 

The fine print: No tax on tips

There are a few specifics when it comes to “no tax on tips”

• The deduction applies only to federal income tax. Social Security, Medicare, and state or local taxes still apply.
• If your modified adjusted gross income (MAGI) is above $150,000 ($300,000 if married filing jointly), you don’t qualify.
• If you’re married, you must file jointly to claim the deduction.
• No tax on tips doesn’t apply if you’re self-employed in a Specified Service Trade or Business (SSTB) under section 199A.

Ways to track your tips

Tracking your tips year-round makes tax time easier and helps you avoid scrambling later.

• Choose one system and commit to it. Whether you use pen and paper, a notes app, or tip-tracking app, consistency matters more than the tool itself.
• Make it a part of your clock-out routine. If you work in a service industry, you probably already have responsibilities to take care of before you clock out. Make adding to your tip log a part of your closing routine. 
• Keep it simple. Record the date, amount, and where you worked. That’s usually enough.
• Check in monthly or quarterly. Compare your tracked tips with what’s on your paystub to make sure everything lines up.

How to make the most of your reported tips

Tracking tips consistently can pay off at tax time. When you know exactly how much you earned, it’s easier to understand what you may be able to deduct and avoid surprises when you file. 

If you earn tips outside of a traditional W-2 job, this Self-Employed Tax Deductions Calculator lets you plug in your income and see how tips may impact your estimated taxes and potential deductions.

TurboTax tools make it easier to estimate, plan, and file with confidence.