Rideshare Drivers Can Deduct Up to $25,000 in Tips Through 2028
The IRS tip deduction now lets rideshare drivers deduct up to $25,000 of tip income on Schedule 1-A for tax years 2025–2028, reducing taxable income dollar-for-dollar. A driver in a 24% bracket claiming the $25,000 cap would save $6,000 on their federal tax bill.
1. Deduction Overview
The new federal tax break allows rideshare drivers to subtract up to $25,000 of voluntary tip income from taxable income on Schedule 1-A for each tax year from 2025 through 2028, reducing their federal tax liability dollar-for-dollar.
2. Eligible Occupations
This deduction covers workers in traditionally tipped roles—including rideshare drivers, restaurant servers, barbers, house cleaners, babysitters and pet sitters—provided tips are paid voluntarily in cash, credit, debit or gift card.
3. Reporting Requirements
For 2025, drivers must total voluntary tips using their own records and Form 1099-K summaries; starting in 2026, platforms like Lyft must separately report tip income on issued 1099 forms.
4. Restrictions and Phase-Outs
Tip income deductions cannot exceed net business income or trigger a loss, exclude specified service trades or businesses, require Social Security numbers, mandate married filing jointly status for spouses, and phase down for single filers over $150,000 or joint filers over $300,000.