The creator’s tax guide
The No Tax on Tips Act, signed into law on July 4, 2025 as part of the One Big Beautiful Bill Act, lets qualifying creators deduct up to $25,000 in tip income from their federal taxable income — every year from 2025 to 2028.
⚠This guide is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional before claiming any deduction.
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The No Tax on Tips Act (NTOT) is a federal tax provision enacted as part of the One Big Beautiful Bill Act, signed by the President on July 4, 2025. It creates a new above-the-line deduction that allows eligible workers — including digital creators — to exclude qualifying tip income from their federal taxable income.
The provision covers tips received during the four tax years 2025, 2026, 2027, and 2028. It is currently scheduled to expire after December 31, 2028 unless extended by Congress.
Key point: NTOT is a deduction, not a tax credit. It reduces your taxable income, which means the actual tax saving depends on your marginal tax rate. At a 22% bracket, a $25,000 deduction saves roughly $5,500 in federal taxes.
The law follows years of advocacy recognising that tips — paid directly person-to-person as an expression of appreciation — differ fundamentally from wage income. Congress chose to extend this recognition to the growing class of digital creators whose income arrives primarily through voluntary fan support.
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To claim the NTOT deduction, you must meet all of the following conditions:
You receive tips in the course of a trade or business
Casual one-off tips from friends do not qualify. The tips must be received in connection with your creator activity — posting content, live-streaming, podcasting, etc.
You report the tips as income
The deduction does not exempt tips from being reported. You still declare the income; the deduction then reduces the portion subject to tax.
Your modified adjusted gross income (MAGI) is below $150,000
For single filers the deduction phases out between $150,000 and $175,000 MAGI. For married filing jointly the phase-out begins at $300,000. Above the upper threshold, no deduction is available.
The tips are "qualified tips" under the statute
See Section 04 for details on what counts.
Creator types that typically qualify include: YouTubers, Twitch/Kick streamers, TikTok creators, podcasters, independent musicians, writers, illustrators, photographers, independent journalists, and social media influencers — provided the tips are received through a qualifying tipping platform in the normal course of their creative work.
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The maximum deduction is $25,000 per tax year in qualified tip income. You cannot carry unused deduction forward — if you receive less than $25,000 in tips in a given year, the unused portion is simply not available.
If your MAGI exceeds $150,000 (single) or $300,000 (married filing jointly), the deduction is reduced proportionally and fully phases out at $175,000 / $325,000 respectively. Your modified AGI for this purpose includes all income before the NTOT deduction.
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Not all creator income is a “qualified tip” under NTOT. The statute distinguishes voluntary tips from compensation — the distinction matters for what you can deduct.
✓ Likely qualifies
✓One-time voluntary tips via a tipping platform
✓Fan tips sent as a thank-you with no expectation of return
✓Virtual tips during live streams (cash-out equivalent)
✓Tips sent directly in response to free content
✗ Does not qualify
—Paid subscriptions or memberships (e.g. Patreon tiers)
—Payments in exchange for content, merchandise, or services
—Brand deals, sponsorships, or affiliate commissions
—Revenue-sharing payouts from platform ad programmes
Important: The IRS has not yet issued final guidance on every edge case. The distinction between a “tip” and “income for services” may not always be clear-cut. Always keep detailed records and work with a qualified tax professional when filing.
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Gratify is built to make NTOT recordkeeping effortless. Every tip processed through Gratify is automatically logged with the data the IRS requires to substantiate the deduction.
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Do I need a special form to claim the NTOT deduction?
The IRS is expected to issue updated Schedule forms or instructions for the NTOT deduction. For the 2025 tax year, check IRS.gov or consult a tax professional for the latest guidance on how to report the deduction on your federal return.
I also earn money from brand deals and ad revenue. Does NTOT apply to those?
No. Only voluntary tips qualify. Income from brand partnerships, sponsored content, platform ad revenue (YouTube AdSense, Twitch Bits used as ad revenue, etc.), and paid subscriptions does not qualify for the NTOT deduction. Keep these income streams clearly separated in your records.
Does the deduction apply to state taxes as well?
NTOT is a federal deduction only. State tax treatment of tip income varies. Some states conform to federal changes automatically; others do not. Check with your state's Department of Revenue or a local tax advisor.
I'm an LLC or S-Corp — can I still claim NTOT?
The deduction is taken at the individual level. Tips pass through to the individual's personal return from a sole proprietorship, single-member LLC, or S-Corp. The mechanics depend on how your business is structured. Consult a CPA to ensure the deduction flows correctly to your Form 1040.
What if I receive more than $25,000 in tips in a year?
The deduction is capped at $25,000. Tips above that amount are fully taxable at your normal rate. Gratify's records will show your total tip income and you (or your tax preparer) apply the $25,000 ceiling when calculating the deduction.
Not tax advice. This page is provided for general informational purposes only. It does not constitute legal, tax, or financial advice and should not be relied upon as such. Tax laws are complex and individual circumstances vary. The IRS may issue additional guidance that changes how the No Tax on Tips Act applies in practice. Gratify makes no warranties about the accuracy or completeness of this information. Please consult a licensed tax professional or CPA before making any decisions based on this guide.
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