Illinois state tax context
Illinois has its own state income tax (approximately 4.95% top marginal rate on wages as of 2025). This federal deduction does not automatically apply to your Illinois return — states set their own conformity rules. Check the Illinois Department of Revenue or your preparer to see whether Illinois follows this new federal deduction.
How "no tax on tips" actually works
For tax years 2025 through 2028 the One Big Beautiful Bill Act allows a federal deduction of up to $25,000 of qualified tip income.
Key limits
- Cap: $25,000 per return per year.
- Phase-out starts at $150,000 MAGI (single) / $300,000 (joint).
- Only voluntary tips in customarily-tipped occupations qualify.
Frequently asked questions
Does this deduction change my Illinois state tax bill?
Illinois has its own state income tax (approximately 4.95% top marginal rate on wages as of 2025). This federal deduction does not automatically apply to your Illinois return — states set their own conformity rules. Check the Illinois Department of Revenue or your preparer to see whether Illinois follows this new federal deduction.
Do I need to itemize to claim this?
No. It is a federal above-the-line deduction, so you can claim it alongside the standard deduction regardless of Illinois's rules.
How long is this deduction available?
Tax years 2025 through 2028. It expires after 2028 unless Congress extends it.
Where do I claim it when filing?
On your federal Form 1040 as an above-the-line deduction — tax software and the IRS instructions walk through the new OBBBA lines for 2025 returns onward.