Updated October 28, 2026. Quick answer: This 2025 worksheet in the Form 1040 instructions caps your qualified tips deduction, business by business, at each business’s net income. For each business you take the lesser of the net income and the qualified tips from Forms 1099, add the businesses up, and the total goes on Schedule 1-A line 5.
Schedule 1-A (Form 1040) for 2025, line by line: Schedule 1-A Part II (tips).
When you use it
The form’s line 5 reads “Do not enter more than the net profit from the trade or business.” The instructions add: “Line 5. Include the qualified tips you and/or your spouse received in the course of a trade or business, but only to the extent the trade or business in which you received the qualified tips has net income.” “If you and/or your spouse received qualified tips in the course of more than one trade or business, complete the Multiple Trades or Businesses Worksheet.” Tips you received as an employee of several employers go on the employer worksheet instead.
The net income limitation
“Qualified tips from a trade or business can’t be more than the gross income from the trade or business in which the qualified tips were received minus the total of all deductions allocable to that trade or business, including the deductible part of self-employment tax; the deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and the self-employed health insurance deduction, but not including the deduction for qualified tips.” “Do not reduce it below zero.” “If the business shows a net loss on Schedule C, then the sole proprietor would not include any qualified tips received in the business on line 5 of Schedule 1-A.”
The columns
Line 1 has a row for each of up to five businesses, lettered A to E. If you have more Forms 1099 than the four tip columns hold, the instructions say to “complete as many copies of the worksheet as needed and include the total for all worksheets in column (i) on the row for the business in which you received the Forms 1099”.
| Column or line | What the worksheet says |
|---|---|
| (a) | “Name of your business” |
| (b) | “Net profit of business from Schedule C, line 31; the total of Schedule E, line 28(g) through 28(k); or Schedule F, line 34” |
| (c) | “Other deductions allocable to the trade or business and not reported on Schedule C, Schedule E, or Schedule F (as applicable)” |
| (d) | “Subtract column (c) from column (b)” |
| (e) to (h) | “Qualified tip amount from first Form 1099-NEC, box 1; Form 1099-MISC, box 3; or Form 1099-K, box 1a” (the next three columns repeat this for the second, third and fourth form) |
| (i) | “Total qualified tip amount. Add columns (e), (f), (g), and (h)” |
| (j) | “Enter the lesser of column (d) and column (i)” |
| Line 2 | “Add lines 1A through 1E, column (j), and enter the total on Schedule 1-A, line 5” |
The instructions’ three examples in the worksheet
The instructions give three examples. Example 1 is a tutoring sole proprietorship with “Your gross income from the business for 2025 was $5,000 and your deductible expenses from the business are $500.” Example 2 is a rideshare driver with “Your gross income from the business for 2025 was $15,000 and your deductible expenses from the business were $14,000.” Example 3 says “The facts are the same as in Example 1 and Example 2, except that you own and operate both businesses.” The placement of those numbers in the worksheet columns below is ours; the amounts are the IRS’s.
| Business | (b) | (c) | (d) | (e) | (i) | (j) |
|---|---|---|---|---|---|---|
| A: tutoring business | $4,500 | $0 | $4,500 | $500 | $500 | $500 |
| B: rideshare business | $1,000 | $0 | $1,000 | $1,800 | $1,800 | $1,000 |
| Line 2, computed: 500 + 1,000, to Schedule 1-A line 5 | $1,500 (computed) |
The tutoring business keeps all $500 because its net income of $4,500 is higher. The rideshare business’s $1,800 of tips is cut to $1,000, its net income. Together that is $1,500 on Schedule 1-A line 5, matching the instructions’ Example 3, which says “You enter $1,500 of qualified tips on Schedule 1-A, line 5.”.
The limits that still apply
The instructions cap the deduction and reduce it at higher incomes. “You can’t deduct more than $25,000 of qualified tips, regardless of your filing status.” The $25,000 is then reduced when modified adjusted gross income, the Schedule 1-A line 3 amount, is above $150,000 for single, head of household or qualifying surviving spouse filers, or above $300,000 for married filing jointly. Two further conditions: “If you are married, you must file a joint return with your spouse to claim this deduction.” “You and/or your spouse who received qualified tips must have a valid social security number to claim the deduction for qualified tips.”
Edition
This page reads the Instructions for Form 1040 and 1040-SR (2025), the file irs.gov served on 2026-10-28 (sha256 in the kit data). It covers the 2025 return, filed in 2026. Check the tax year printed on the worksheet in your own copy and use that year’s line numbers and dollar amounts, because a different year’s worksheet can word its lines differently.
Common mistakes
- Using gross receipts as the limit. The limit is net income, after the deductions allocable to that business including half of self-employment tax.
- Netting one business’s loss against another’s profit. The instructions apply the limitation to each separate trade or business.
- Counting cash tips that never appear on a Form 1099. The instructions say only amounts that appear in the aggregate on Forms 1099 can be considered qualified tips.
- Forgetting the $25,000 cap after the worksheet. The worksheet total feeds line 5, and the overall cap and income reduction apply later in Part II.
Related: Form 1099-NEC boxes 1b to 1d, Form 1099-K boxes 1c and 1d, Schedule C, and Schedule SE.
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Answer againSources
- Instructions for Form 1040 and 1040-SR (2025): https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
- Schedule 1-A (Form 1040) (2025), Additional Deductions: https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf
Read from the IRS documents linked above on October 28, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.