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“No Tax on Tips” Explained for Rideshare and Delivery Drivers
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Drivers can deduct up to $25,000 of tips from federal income tax for 2025–2028. Who qualifies, what's excluded, and what you still owe.
Starting with the 2025 tax year, many workers who earn tips can deduct them from their federal taxable income. Rideshare and delivery drivers are on the IRS list of qualifying occupations.
The basics
- Amount: up to $25,000 of qualified tips per year.
- Years: tax years 2025 through 2028.
- Income limit: the deduction phases out above $150,000 of modified adjusted gross income, or $300,000 for married couples filing jointly.
What it doesn't do
- It doesn't remove self-employment tax. As a contractor, you still owe the 15.3% Social Security and Medicare tax on your tips.
- It applies to federal income tax. State rules vary.
- Tips must be voluntary. Fees the app adds, like service charges, generally aren't tips.
How to prepare
- Download each app's annual earnings summary, which usually breaks out tips.
- Keep monthly screenshots or statements in case an app's report is incomplete.
- Tell your tax preparer or software that you're claiming the tips deduction.
An example
Say you earned $30,000 from delivery apps in 2026, including $9,000 in customer tips, and your profit after the mileage deduction is $20,000. Under the new deduction you could subtract up to the $9,000 in qualified tips when figuring federal income tax (subject to the income limits). You would still owe self-employment tax on the full $20,000 profit.
Rules for self-employed drivers
Self-employed workers can claim the deduction if their occupation is on the IRS list and they meet the other rules. The deduction can't be more than the net profit from the business the tips came from. Your tax software or preparer will apply these limits.
Recordkeeping checklist
- Annual tax summaries from every app
- Monthly earnings statements that separate tips from base pay
- Cash tips written down on the day you received them
Frequently asked questions
Does this apply to W-2 package drivers? Only if they receive qualified tips in an eligible occupation. Most package drivers don't get tips.
Do I still report tips as income? Yes. You report all income, then take the deduction.
What about 2029? As written, the deduction ends after tax year 2028 unless Congress extends it.
Bottom line
Keep clean records of your tips. The deduction can meaningfully cut your federal income tax, but it won't touch self-employment tax.
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