The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, created a federal deduction for tip income for tax years 2025 through 2028, often called “No Tax on Tips.” It matters a great deal to servers, sushi chefs, kitchen staff, and bartenders at Japanese restaurants and other places where tipping is part of the job.
Not every tip qualifies, though. The rules look at your occupation, how the tip was paid, whether it was reported, your Social Security number, and your filing status. Depending on your visa, you may also be a “nonresident alien” for U.S. tax purposes, which changes the picture.
This article is written for Japanese nationals working in U.S. restaurants and similar jobs—people on work visas such as the E-2, and F-1 or J-1 students and trainees. It covers who qualifies, cash versus card tips, and what to look for on your 2025 and 2026 tax forms.
Key points
- The deduction covers qualified tips received in an occupation the IRS lists as customarily and regularly receiving tips. In food service, the list includes wait staff, bartenders, chefs and cooks, dishwashers, and host staff.
- The maximum is $25,000 per return per year—still $25,000 on a joint return. It is reduced by $100 for each $1,000 of MAGI above $150,000 ($300,000 for joint filers).
- Tips paid in cash, by card, gift card, or payment app, and tips received through a tip pool can qualify. An automatic service charge the customer cannot change does not.
- Only tips included on a W-2, a Form 1099, or reported by you on Form 4137 can be deducted, so unreported cash tips are a problem.
- You need a valid SSN that allows work, and married taxpayers must file jointly. Because Form 1040-NR does not allow joint filing, a married nonresident alien generally cannot claim it.
Which jobs qualify? Japanese restaurant roles
Only tips earned in an occupation that the IRS lists as customarily and regularly receiving tips on or before December 31, 2024 qualify. The final regulations issued in April 2026 (IR-2026-49) list more than 70 occupations in eight categories, each with a three-digit Treasury Tipped Occupation Code (TTOC).
The Beverage and Food Service category (codes 101–110) includes:
| TTOC | Occupation | Restaurant example |
|---|---|---|
| 101 | Bartenders | Mixing and serving drinks at the bar |
| 102 | Wait staff | Servers taking orders and serving tables |
| 103 | Food or beverage servers, non-restaurant | Serving in hotels, facilities, and similar settings |
| 104 | Dining room and cafeteria attendants and bartender helpers | Clearing tables, supplying the bar |
| 105 | Chefs and cooks | Sushi chefs, line cooks |
| 106 | Food preparation workers | Prep work in the kitchen |
| 107 | Fast food and counter workers | Counter service |
| 108 | Dishwashers | Cleaning dishes and kitchen equipment |
| 109 | Host staff, restaurant, lounge, and coffee shop | Greeting and seating guests |
| 110 | Bakers | Bakery and pastry work |
So it is not only front-of-house staff. Sushi chefs and kitchen staff who receive a share of a tip pool are in listed occupations too. Other categories cover jobs such as hotel bell staff and housekeeping, hair stylists and nail technicians, massage therapists, and delivery and driving work.
Tips received in a specified service trade or business (SSTB) do not qualify. If you are self-employed, the deduction cannot exceed your net income from the business in which you earned the tips.
What makes a tip “qualified”: cash vs. card
Under the final regulations, a qualified tip must:
- Be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, or a mobile payment app
- Be received from customers or, for employees, through a mandatory or voluntary tip-sharing arrangement
- Be paid voluntarily by the customer and not be subject to negotiation
| Situation | Qualified tip? |
|---|---|
| Cash tip left by a customer (reported to your employer) | Can qualify |
| Tip added on a credit or debit card | Can qualify |
| Tip paid by gift card, check, or payment app | Can qualify |
| Share received from a tip pool (including kitchen staff) | Can qualify |
| Automatic 18% service charge on large parties that the customer cannot remove or change | Does not qualify |
| Tip the customer chose on a payment terminal offering 15%, 18%, 20%, other, or no tip | Can qualify |
| Service charge the customer can disregard or modify | Can qualify |
| Event tickets, meals, services, or other non-cash items | Does not qualify |
The IRS gives exactly this restaurant example: an automatic 18% service charge for large parties, distributed to waiters, bussers, and kitchen staff. If the customer has no option to disregard or modify it, the amounts distributed are not qualified tips. By contrast, the Form 1040 instructions describe a server who hands the customer a point-of-sale device offering 15%, 18%, 20%, other, or no tip; when the customer picks 18% and pays by card, that 18% is a qualified tip because the customer decided the amount. The same 18% can go either way depending on whether the customer had a choice.
Cash tips start with reporting to your employer
You can deduct only tips included on Form W-2, Form 1099-NEC, 1099-MISC, or 1099-K, or reported by you on Form 4137. Employees should keep a daily tip record and report cash tips to the employer by the 10th day of the following month, unless they total less than $20 for the month from that employer. Cash tips you did not report to your employer are reported on Form 4137, which also figures Social Security and Medicare tax on them.
Tips are income and are generally subject to Social Security and Medicare taxes. This deduction reduces only federal income tax.
The cap and the income phase-out
| Filing status | Maximum deduction | Phase-out starts at MAGI of |
|---|---|---|
| Single, head of household, etc. | $25,000 | $150,000 |
| Married filing jointly | $25,000 (not doubled) | $300,000 |
| Married filing separately | Not allowed | — |
On Schedule 1-A, you first limit qualified tips to $25,000, then divide the amount by which your MAGI exceeds the threshold by $1,000, drop any fraction, multiply by $100, and subtract. MAGI is AGI plus amounts excluded under section 911 (the foreign earned income exclusion) and certain territory exclusions. The deduction is available whether you itemize or take the standard deduction.
SSN, filing status, and your visa
SSN and joint filing
The person who received the tips must have a valid SSN. For this deduction, a valid SSN is one that is valid for employment and issued by the Social Security Administration before the due date of the return (including extensions). If your card says “Valid for Work Only with DHS Authorization,” the SSN is valid only as long as the DHS authorization is valid, so visa holders should keep an eye on their work authorization dates. An ITIN is not an SSN, so it does not meet this requirement. If you are married, you must file a joint return to claim the deduction.
Work-visa holders who are U.S. tax residents
If you work on a visa such as the E-2 and are a resident alien for tax purposes—for example, under the substantial presence test—you file Form 1040 like a U.S. citizen and can claim the deduction if you meet the rules. If your spouse lives in Japan and is a nonresident alien, you cannot file jointly as-is. If you are a U.S. citizen or resident, you may choose to treat your nonresident spouse as a U.S. resident and file jointly (IRS Publication 519). That choice brings your spouse’s worldwide income, including Japanese income, into the U.S. return, so compare the total tax first.
F-1, J-1, and other nonresident aliens
F-1 students, J-1 trainees, and others who are nonresident aliens for tax purposes file Form 1040-NR. Form 1040-NR has a line for Schedule 1-A deductions (line 13c), and the IRS guidance on amending to claim this deduction specifically includes people who filed a 2025 Form 1040-NR.
However, Form 1040-NR does not allow married filing jointly. Because the tips deduction requires married taxpayers to file jointly, a married nonresident alien generally cannot claim it. A single nonresident alien with a valid SSN whose tips from a listed occupation are properly reported may qualify. Whether your visa allows the work at all is an immigration question outside the scope of this article.
Reading your forms: 2025 vs. 2026
| Tax year 2025 | Tax year 2026 and later | |
|---|---|---|
| Employer reporting of tips | Not required under transition relief (some employers reported voluntarily, e.g., in box 14) | W-2 box 12, code TP: total cash tips reported to the employer |
| Occupation code (TTOC) | Not required | W-2 box 14b |
| What you can rely on | Social Security tips in W-2 box 7, totals from Forms 4070, amounts on Form 4137, daily tip records, etc. (Notice 2025-69) | Amounts on your W-2 or 1099s, and tips you report on Form 4137 |
If you already filed your 2025 return—for example, if your job falls within an occupation the April 2026 final regulations added or clarified—you may be able to claim or change the deduction on Form 1040-X.
Worked examples
Example: All figures below are hypothetical.
Example 1: Server at a Japanese restaurant (single, U.S. tax resident)
In 2026 you earn $32,000 in wages, $20,000 in card tips paid through payroll, and $8,000 in cash tips you reported to your employer each month. Your MAGI is $60,000. A $1,500 share of an automatic 18% large-party service charge (which customers could not change) is not a qualified tip, so it is left out.
- Qualified tips: $20,000 + $8,000 = $28,000
- Apply the cap: $28,000 → $25,000
- MAGI is under $150,000, so there is no reduction. Deduction: $25,000
Using a simple 12% marginal rate assumption, federal income tax would be about $3,000 lower. Social Security and Medicare taxes still apply to the tips.
Example 2: Married couple, both servers, filing jointly
One spouse has $18,000 of qualified tips and the other $15,000, with MAGI of $120,000. The total is $33,000, but the cap is still $25,000. MAGI is below $300,000, so the deduction is $25,000.
Example 3: Phase-out applies
A single filer has $20,000 of qualified tips and MAGI of $162,800. The excess of $12,800 ÷ $1,000 = 12.8, which drops to 12, so the reduction is 12 × $100 = $1,200. The deduction is $20,000 − $1,200 = $18,800.
FAQ
Do sushi chefs and kitchen staff qualify if they share in tips?
The list includes chefs and cooks (105), food preparation workers (106), and dishwashers (108), and tips received through a tip-sharing arrangement can be qualified tips—as long as they are reported on your W-2 or other qualifying form.
I did not report some cash tips to my employer. Can I still deduct them?
Only tips on a W-2 or 1099, or reported on Form 4137, can be deducted. Report unreported cash tips on Form 4137, which also means paying Social Security and Medicare tax on them.
Is a service charge a tip?
An automatic service charge the customer cannot remove or change is not a qualified tip, even if it is shared with staff. If the customer can disregard or modify it, it can qualify.
Can an F-1 student use the tips deduction?
Form 1040-NR includes the Schedule 1-A deduction line. A single student with a valid SSN that allows work, whose tips from a listed occupation are properly reported, may qualify. A married nonresident alien generally cannot, because joint filing is not available.
Does it lower my state income tax?
This is a federal income tax deduction. State treatment varies, so check your state’s rules.
At CLT NY INC., an IRS Enrolled Agent can review whether your tips qualify, determine your resident or nonresident status on a visa, and prepare your return, in English or Japanese. Contact us.
Related articles
- The Truth About the ‘183-Day Rule’: A Comprehensive Guide to the U.S. Substantial Presence Test for Tax Residency
- F-1/J-1 Visa Holders: Comprehensive Guide to Social Security Tax Exemption and Claiming Refunds for Erroneous Withholding
- Choosing Your Filing Status: Married Filing Jointly vs. Separately, and the 6013(g) Election for Spouses in Japan
- First-Time US Tax Filing: Essential Documents (W-2/1099) and Preparation Flow Complete Guide
- Filing US Taxes as an H-4 or L-2 Spouse: How Employment Status Changes Your Filing Options, and the Section 6013(g) Trap
Sources: IRS: Tax deductions for working Americans and seniors; IRS: What the “No Tax on Tips” deduction means for you; IRS IR-2026-49: Final regulations listing tipped occupations; IRS: Occupations that customarily and regularly received tips; IRS: Claiming “no tax on tips” may require an amended return; IRS IR-2025-114; IRS Notice 2025-69; IRS Schedule 1-A (Form 1040); IRS 2025 Instructions for Form 1040 (Schedule 1-A); IRS 2026 General Instructions for Forms W-2 and W-3; IRS: Tip recordkeeping and reporting; IRS Instructions for Form 1040-NR; IRS 2026 Form 1040-ES (NR); IRS Publication 519. Information as of October 2026. This article provides general information and is not individual tax advice.
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