<2> Warning: New IRS Instructions Limit ‘No Tax On Tips’ Deduction For Gig Workers
<3> Tax Filing Season Underway Amid Changes to 1040 Instructions
The Internal Revenue Service (IRS) has released revised 1040 instructions for the 2023 tax year, which may impact gig workers who rely on the ‘no tax on tips’ deduction. This change may lead to increased tax liabilities for self-employed individuals who receive tips as part of their income.
<4> Understanding the ‘No Tax On Tips’ Deduction
The ‘no tax on tips’ deduction allows self-employed individuals to report tips as income on their tax return, but not pay taxes on those tips immediately. Instead, they can report the tips as income and claim a deduction for the taxes they would have paid on those tips. This deduction is often used by gig workers, such as food delivery drivers, ride-sharing drivers, and bartenders.
<5> Revised 1040 Instructions Limit Deduction
The revised 1040 instructions include new rules for claiming the ‘no tax on tips’ deduction. According to the IRS, self-employed individuals can only claim the deduction if they have a record of the tips they received and the taxes they paid on those tips. This record