No Tax on Tips for Taxi and Uber Drivers (2025–2028)

In short: yes, NYC taxi and rideshare drivers are in the group the new federal "no tax on tips" deduction was written for. The IRS list of tipped occupations includes code 802, "Taxi and rideshare drivers and chauffeurs" — "Cab driver, personal driver, platform/app-based rideshare driver" (IRS TTOC list). For 2025 through 2028 you may deduct up to $25,000 of qualified tips a year, but if you are self-employed the deduction can't be more than your net income from driving (IRS FS-2025-03).

Qualified tips, in one line: voluntary cash or charged tips received from customers (or through tip sharing). Fares, surcharges and bonuses are not tips. This page explains the published rules; it is not tax advice.

The rules that apply to drivers

From the IRS fact sheet and Tax Tip 2026-06:

1. Your occupation must be on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024. Code 802 covers cab and app-based rideshare drivers.
2. Qualified tips are voluntary cash or charged tips from customers. A tip the rider chose in the app is a charged tip; cash handed to you is a cash tip.
3. Cap: $25,000 a year.
4. Self-employed limit: the deduction can't exceed your net income (figured without this deduction) from the trade or business where you earned the tips. If your driving shows a $9,000 profit after expenses, you can't deduct more than $9,000 of tips, even if riders tipped you $12,000.
5. Phase-out: the deduction shrinks when modified adjusted gross income is over $150,000 ($300,000 joint).
6. Who can claim: itemizers and non-itemizers. You must put a valid Social Security number on the return, and married people must file jointly.
7. Specified service businesses: self-employed people in a "specified service trade or business" under section 199A are excluded. Whether that touches any driver's business is a question for a preparer; the IRS list itself names rideshare and cab drivers.

The IRS says tips can be claimed when they are included on a Form W-2, 1099-NEC, 1099-MISC or 1099-K, or reported on Form 4137 (IRS Tax Tip 2026-06).

Tips on the new 1099 boxes

The IRS's 2026 instructions add new boxes to Forms 1099-NEC and 1099-MISC for cash tips and for the Treasury Tipped Occupation Code of the person who got them (IRS i1099mec, 2026). Look at every form you receive for a tips amount and code 802. If your app's year-end summary shows tips but no form lists them, ask the company how it reported them and take that answer to your preparer. Forms and gross amounts are explained in your 1099-K vs what you earned.

How tips look in TLC trip data

TLC trip records show how differently tips work in taxis and apps. In TLC Help's aggregation of Sep 2025–Aug 2026, 19.6% of app trips had a tip, compared with about 91% of yellow and green credit-card trips. Taxi records include only card tips — cash tips are not recorded — so the taxi figures leave out cash.

For your own deduction, these averages don't matter — only your documented tips do.

Records to keep

Taxi drivers: under TLC rules you must not ask for a tip or suggest one is expected — see taxi payment rules. The deduction changes nothing about that.

Three fictional drivers, worked through

These are made-up examples that apply only the limits in the IRS fact sheet. They ignore every other part of the return.

Rosa, app driver. Riders tipped her $3,200 in the app in 2026. Her Schedule C profit after car costs is $31,000 and her MAGI is well under $150,000. The lowest of $3,200, $25,000 and $31,000 is $3,200, so that is the most she could deduct.

Kwame, yellow taxi lease driver. His card tips were $14,000 and his cash-tip log shows $4,000, so $18,000 in qualified tips. His profit after the lease, gas and other costs is only $12,000. The self-employed limit caps his deduction at $12,000, the net income from the business where he earned the tips.

Dev, owner-driver with a second business. His tips were $6,000 but his MAGI is above $150,000. The phase-out reduces his deduction; how much depends on the formula on the IRS form. He needs a preparer to work it out.

The point: for many drivers the cap of $25,000 is not the limit that matters. Your profit after expenses and your documentation decide what you can claim.

Where it shows up for drivers

• On your federal return, as a deduction after you report all income. It lowers taxable income, not your gross receipts.
• On your 1099 forms, through the new tip and occupation-code boxes from 2026.
• In your estimated payments: if you expect the deduction, your income tax for the year may be lower, which can change how much you pay each quarter.
• In a tax letter or audit: NYS and the IRS may ask how you documented cash tips. A same-day log is far stronger than a total written later.

Steps to claim it

What's not settled (check before you rely on it)

• Self-employment tax. The IRS pages we read describe a deduction against income. They do not say it reduces the 15.3% self-employment tax, which is figured on Schedule SE. Don't assume it does.
• New York State and NYC tax. We did not find NYS guidance on whether the state follows this deduction. Check with NYS Tax or a preparer before counting on it for state or NYC income tax.
• Final rules. The IRS planned transition relief for 2025 and further guidance. Check IRS.gov for the latest before filing.

Because this deduction lowers income tax and not (as far as we can confirm) SE tax, plan your quarterly payments carefully. For other write-offs, see the TLC driver deductions list.