No Tax on Tips for Rideshare and Delivery Drivers

Who Qualifies

The deduction applies only to tips earned in occupations on the IRS list of jobs that customarily and regularly received tips. The final regulations include two categories that cover most gig drivers:

• Taxi and Rideshare Drivers and Chauffeurs (occupation code 802), with app- and platform-based drivers given as an example. This covers Uber and Lyft drivers.
• Goods Delivery People (occupation code 804), with app- and platform-based delivery workers given as an example. This covers DoorDash, Uber Eats, and Instacart couriers.

You also need to meet these conditions:

• The tips are voluntary and paid in cash or a cash equivalent. Tips paid through the app count, because the rules include electronic and mobile payments denominated in cash.
• You have a valid Social Security number, and if you are married, you file a joint return.
• Your income is not too high: the deduction phases out when modified adjusted gross income is over $150,000, or $300,000 on a joint return.
• The tips are reported on a Form W-2, a Form 1099, another statement given to you, or on Form 4137 if you report them yourself.

How Much You Can Deduct

The cap is $25,000 per return each year. For self-employed drivers there is a second limit: the deduction can't exceed your net income, before this deduction, from the business where you earned the tips. In practice, that means your driving profit after expenses such as mileage.

What the deduction is worth depends on your tax bracket. For example, if your top federal income tax rate is 12%, deducting $4,000 of tips lowers your federal income tax by about $480.

What It Doesn't Do

• It doesn't make tips tax-free. Tips are still income and still go on your return; the deduction is subtracted afterward.
• It doesn't reduce self-employment tax. It is an income tax deduction, not a business expense, so your tips remain part of the net earnings used for the 15.3% Social Security and Medicare tax. The 1099 tax calculator shows that part.
• It may not apply to state tax. This is a federal deduction. Check whether your state follows it.
• It is temporary. It covers tax years 2025 through 2028.

How to Claim It

1. Report all of your driving income, tips included, on Schedule C as usual.
2. Figure your qualified tips for the year. Platform earnings summaries usually show tips separately; keep them with your own records.
3. Claim the deduction in Part II of Schedule 1-A (Form 1040), the new schedule for the deductions created by this law.
4. Already filed your 2025 return without it? You may be able to claim it with an amended return (Form 1040-X).

For 2025, information returns were not required to show tips separately. The IRS says self-employed workers can rely on their own records, such as a daily log showing the date and tip amount, to support the figure they claim.

Records to Keep

• Annual earnings or tax summaries from each app, which break out tips from fares and pay.
• A simple log of cash tips: date, trip or order, and amount.
• Your 1099 forms and the Schedule C showing the tips in your gross income.

The record-keeping guide covers how long to keep these and what else to save, such as your mileage log.

Quick Checklist

• You drive passengers or deliver goods, including through an app.
• Your tips were voluntary and are reported on a 1099, a platform statement, or Form 4137.
• You have a valid SSN and, if married, file jointly.
• Your deduction is no more than $25,000 and no more than your net driving profit.
• You claim it on Schedule 1-A, and still pay self-employment tax on the tips.