QUESTION:
What are “Qualified Tips”?
ANSWER:
Qualified tips are voluntary payments, either cash or noncash, such as credit card tips, received directly from customers or through tip-sharing arrangements in professions that traditionally received tips before 2025, like servers, bartenders, and delivery drivers. Mandatory service charges or automatic gratuities generally do not qualify.
For 2025, Notice 2025-69 provides transition rules. Employees can determine qualified tips by using the reported tips on Form 4070, the allocated tips in W-2 Box 7 (whichever is higher), and any unreported tips from Form 4137. Self-employed workers substantiate with logs or statements.
This helps millions of tipped employees claim the deduction, even without the updated 2025 forms, with separate reporting starting in 2026.