1 of 34

No Tax on Tips for Self-Employed Workers

Matt Meyerson

NTTC Member, NY3 Training Specialist

March Update

1

March 1, 2026

2 of 34

Focus of this presentation:

    • Qualified Tips Deduction for Self-Employed Workers
    • Associated adjustment to Qualified Business Income

Not the focus:

    • Self-Employment, Schedule C
    • Idiosyncrasies of Door Dash vs. Uber, etc.
    • Qualified Tips Deduction for Employees

March Update

2

March 1, 2026

3 of 34

What Changed?

  • 1/30 Leader Communication – hold on returns w/ S-E tips
  • 2/27 – IRS revised Form 1040 instructions to better define the net income limitation for the qualified tips deduction for self-employed individuals
    • Now: (Sch C profit) – (S-E tax deduction) – (SEHI deduction)
  • 2/28 – NTTC posted accordingly revised worksheet, �NTTC 4012, and NTTC 4491

March Update

3

March 1, 2026

4 of 34

References

All of the following are available from NTTC Useful Tax Prep Links

    • Bookmarked on all Chromebooks at Tax-Aide Links > Tax Prep and Training
  • NTTC 4491, Qualified tips deduction, pages 19-18 to 19-21
  • Qualified Tips Deduction Worksheet for Self-Employed Workers
  • NTTC 4012:
    • Page F-20: Qualified Tips Deduction
    • Page F-18: Qualified Business Income (QBI) Deduction

March Update

4

January 19, 2026

5 of 34

Qualified Tips Deduction�For Self-Employed Workers

AKA No Tax on Tips

March Update

5

March 1, 2026

6 of 34

Qualified tips deduction requirements

  • Additional deduction on top of standard or itemized deduction
  • Qualified tips up to $25,000 per tax return
  • Occupation that customarily and regularly received tips before 2025 as listed at IRS.gov/TippedOccupations
  • MAGI phaseout starts at $150,000 ($300,000 for MFJ)
  • Tip earner must have SSN valid for work is required (no ITINs)
  • MFS not eligible

​

​

​

March Update

6

March 1, 2026

7 of 34

Qualified Tips – General Requirements

  • Tips must be voluntary, not negotiated, determined by payer
    • Mandatory fixed service charge is not a qualified tip
  • Cash, check, credit/debit/gift cards, cash transfer apps qualify
    • Merchandise, tickets, digital assets, virtual currencies do not
  • Cannot be received from an employer or an entity you own

​

​

​

​

​

​

​

March Update

7

March 1, 2026

8 of 34

Qualified Tips – Self-Employed Workers

  • Tips must be included on Forms 1099-K, 1099-MISC, or 1099-NEC
    • For TY2025: Do not need to be separately designated on the Form
  • If Form 1099 was not issued due to being under reporting threshold, the associated tips do NOT qualify for this deduction
    • Still taxable income that must be reported on Schedule C!
    • Some companies allow workers to opt-in to receive Forms 1099 even when under the reporting threshold; e.g., Uber
  • Tips paid in physical cash (and not reported on a 1099) �do NOT qualify for self-employed workers

​

​

​

​

​

March Update

8

March 1, 2026

9 of 34

Self-employed Tip Earners Must …

  • Determine amount of tips included on Forms 1099
    • From their documentation: receipts, POS system reports, daily tip logs, third party settlement organization records, etc.
    • Many gig companies will provide the tip amount
  • Retain documentation to support their tip deduction
  • Confirm they were in a qualified trade �and that tips were voluntary

March Update

9

March 1, 2026

10 of 34

TaxSlayer Does Not, So You Must…

  • Calculate the Net Income Limitation (see next slide)
    • Manually limit the SE tips deduction
  • Manually adjust Qualified Business Income (QBI)
    • Reduce QBI for qualified tips (see slide after next)

Use the NTTC Qualified Tips Deduction Worksheet for Self-Employed Workers

    • Top: Collect required information from taxpayer
    • Bottom: Table for volunteers to calculate net income limitation and instructions for TaxSlayer entry for no tax on tips and associated QBI adjustment

March Update

10

March 1, 2026

11 of 34

Net Income Limitation

Schedule C, Line 31 (net profit from the business)�– Schedule 1, Line 15 (S-E tax deduction portion for this business)�– Schedule 1, Line 17 (SEHI deduction portion for this business)

​

  • TaxSlayer does NOT limit qualified tips for the business
  • You must manually apply the net income limitation to what you enter for 1099 tips on the no tax on tips screen

March Update

11

March 1, 2026

12 of 34

Qualified Business Income (QBI) Reduction

  • You must manually reduce QBI for the Schedule C by entering a negative QBI adjustment for the qualified tips
  • Limit to the amount of qualified tips actually deducted
    • Multiple Schedule Cs? Apportion
    • Also a W-2 with tips? See NTTC 4012, page F-18

March Update

12

March 1, 2026

13 of 34

Use the NTTC Qualified Tips Deduction Worksheet for S-E Workers

  • Top: Collect required information from taxpayer
  • Bottom: Table for volunteers to calculate net income limitation
  • Bottom: Instructions for TaxSlayer entries for:
    • 1099 tips on no tax on tips screen
    • Associated QBI adjustment from Schedule C menu

March Update

13

March 1, 2026

14 of 34

Practice Lab Example

Scenario 1

March Update

14

March 1, 2026

15 of 34

Chip T. Jar – Basic Information

  • SSN = 228-00-0228
  • Date of Birth = 2/1/1959 (age 66)
  • Address = 123 MAIN ST, Your City, YS, YZ
  • Filing Single, no dependents

March Update

15

March 1, 2026

16 of 34

Chip’s Self-Employment Income

  • Drives for DoorDash
    • $21,112 of Form 1099-NEC reported income was qualifying tips
    • Also received $1,225 in physical, cash tips
    • $630 – Cell phone expense ($900 w/ 70% business use)
    • $70 – Insulated Bags
    • $3,676 – SEHI ($2,220 Medicare Part B, $1,456 Dental Ins.)
    • 23,600 business miles and 6,400 other miles driven
      • 2018 Toyota was available for personal use, didn’t have another vehicle, had written evidence in support

March Update

16

March 1, 2026

17 of 34

Chip’s Form 1099-NEC (Dasher)

March Update

17

January 19, 2026

Chip received an email from DoorDash saying that $21,112 of this 1099-NEC reported income was from tips

18 of 34

Chip’s Form W-2 (restaurant shift manager)

March Update

18

January 19, 2026

  • Chip also worked as non-tipped restaurant manager
  • Did not receive overtime pay

19 of 34

Qualified Tip Deduction Worksheet for S-E Workers (top)

March Update

19

March 1, 2026

20 of 34

Qualified Tip Deduction Worksheet (page 2)

March Update

20

March 1, 2026

21 of 34

TaxSlayer Demo – Scenario 1

March Update

21

March 1, 2026

22 of 34

Practice Lab Example

Scenario 2

March Update

22

March 1, 2026

23 of 34

Chip’s Form W-2 (restaurant server)

March Update

23

January 19, 2026

  • In this revised scenario, Chip is now a server, not a manager
  • The only W-2 changes are the breakout of wages vs. tips in boxes 3 and 7, respectively

24 of 34

TaxSlayer Demo – Scenario 2

(W-2 update & no tax on tips for W-2 tips)

March Update

24

March 1, 2026

25 of 34

Qualified Tip Deduction Worksheet for S-E Workers (bottom)

March Update

25

March 1, 2026

26 of 34

QBI Adjustment – NTTC-4012 Page F-18

March Update

26

March 1, 2026

27 of 34

QBI Adjustment – NTTC-4012 Page F-18

  • A = 19,283 / 19,283 = 1
  • B = 25,000 – 11,234 = 13,766
  • QBI adjustment = 1 * 13,766 = 13,766
    • Enter Schedule C QBI adjustment of -13,766

March Update

27

March 1, 2026

28 of 34

TaxSlayer Demo – Scenario 2

(Correction of QBI Adjustment)

March Update

28

March 1, 2026

29 of 34

Schedule 1-A, Part I: Modified Adjusted Gross Income (MAGI)

March Update

29

January 19, 2026

Puerto Rico,�Foreign Income,

American Samoa

AGI

MAGI

30 of 34

Schedule 1-A, Part II: No Tax on Tips

March Update

30

January 19, 2026

Qualified Tips received as an employee

Limit to Maximum

Phaseout

Net Deduction

Qualified Tips received in S-E

31 of 34

Schedule 1-A Flow to Form 1040

March Update

31

January 19, 2026

🡨 The Line

🡨 Below the Line

  • All 4 Schedule 1-A Additional Deductions are “below-the-line” deductions
    • i.e. below federal AGI
    • Reduces federal taxable income, but does not affect federal AGI

32 of 34

Form 8995

March Update

32

January 19, 2026

$24,705 (Schedule C, Line 31)�-$13,766 (QBI Adjustment)�-$1,746 (S-E Tax Deduction)�-$3,676 (SEHI Deduction)�=$5,517

33 of 34

State Handling Varies for Schedule 1-A, Additional Deductions

  • For example, a New York return is not affected
    • The starting point of NY IT-201 and IT-203 is federal AGI
      • All 4 Additional Deductions do not affect federal AGI�(only federal taxable income is reduced)
    • No additional entries are applicable to the NY return

March Update

33

January 19, 2026

34 of 34

Key Points

  • For self-employed workers, only tips reported on a Form 1099-K, 1099-MISC, or 1099-NEC are eligible for the qualified tips deduction
  • The Net Income Limitation needs to be calculated and applied manually

= (Sch C, Line 31) – (S-E Tax Deduction) – (SEHI Deduction)

  • A negative QBI adjustment needs to be determined and entered separately for each Schedule C with tip income
  • Use the NTTC Qualified Tips Deduction Worksheet for S-E Workers!

March Update

34

March 1, 2026