Congress called it "no tax on tips." You will still pay tax on your tips.
That isn't me being cute with wording. Run a normal Shipt year through the actual math and the saving comes out around sixty dollars.
You qualify, and that part is settled
Treasury built a list of occupations that customarily and regularly received tips on or before December 31, 2024. Every occupation on it got a three digit Treasury Tipped Occupation Code. The 800s are transportation and delivery. Code 804 is "Goods delivery people."
Look at the examples printed under 804: pizza delivery driver, grocery delivery driver, floral delivery, bicycle courier, package delivery person, appliance delivery driver, furniture delivery person, app/platform-based delivery person.
Grocery delivery driver. App based delivery person. That is the job, described twice.
It almost went the other way. The proposed rule defined 804 as delivering "over established routes or within an established territory," which reads like route drivers and not like somebody taking offers off a screen. Commenters said so. Treasury cut the phrase and added the app based example when it published the final regulations on April 10, 2026.
Self employed people are covered too. No W-2 required.
The shape of the thing
Up to $25,000 a year. If you're self employed it also can't exceed your net income from the business the tips came from, figured before this deduction.
It phases out above $150,000 of modified adjusted gross income, $300,000 filing jointly, losing $100 of deduction for every $1,000 over. Married filing separately disqualifies you. You need a valid Social Security number. It works whether you itemize or take the standard deduction, and it covers tax years 2025 through 2028.
You claim it in Part II of a new form, Schedule 1-A, and the total lands on line 13b of the 1040.
Line 13b matters more than it looks. That's below adjusted gross income, so the deduction shrinks taxable income and leaves your AGI exactly where it was. Anything keyed to AGI, marketplace health insurance subsidies being the one that bites, doesn't move an inch.
The 15.3% is still there
Nobody put this part on a campaign sign.
The IRS states it flatly in its own walkthrough of the Working Families Tax Cuts: the qualified tips deduction is not a reduction of Social Security, Medicare, or self employment taxes. Income tax deduction. Nothing more.
Self employment tax is 15.3% of 92.35% of your Schedule C profit. Your tips sit inside that profit. They stay inside it.
For most shoppers self employment tax is the bigger of the two federal bills by a wide margin, and this law doesn't touch a dollar of it.
What it's worth on a real year
Say 2026, single filer. $22,000 in base and promo pay, $9,400 in tips, so $31,400 gross. Eighteen thousand deductible business miles split evenly across the mileage rate change: 9,000 at 72.5 cents through June 30 and 9,000 at 76 cents from July 1. That's $13,365 of vehicle deduction.
Schedule C profit: $18,035.
Self employment tax on that profit is $2,548.26, and half of it, $1,274.13, comes back off your income. AGI $16,760.87. The 2026 standard deduction for a single filer is $16,100.
Taxable income before the tips deduction: $660.87.
Now apply it. You're holding $9,400 of qualified tips and there's $660.87 of taxable income to erase. The deduction erases it, you save $66.09, and $8,739.13 of deduction evaporates. There's no carryforward.
Your federal bill goes from $2,614.35 to $2,548.26.
Sixty six dollars. On $9,400 of tips.
I'm leaving the qualified business income deduction out of this to keep it readable. Putting it in makes the tips deduction worth less, not more, because it eats the taxable income first.
When it does pay you something
Bigger year, same setup. $36,000 base and promo, $16,000 tips, $52,000 gross, 24,000 miles split the same way for $17,820 of vehicle deduction.
Profit $34,180. Self employment tax $4,829.48. AGI $31,765.26. Subtract the standard deduction and taxable income is $15,665.26.
The tips deduction wipes that out and saves $1,631.83 of income tax. Real money, take it.
Then you write a check for $4,829.48 of self employment tax on a year that included $16,000 of tips.
Two numbers, whole story.
The catch that can cost you the deduction outright
The final regulations say tips not separately reported to you on a W-2, a 1099-NEC, a 1099-MISC, a 1099-K, or reported by you on Form 4137 are not eligible. Not harder to prove. Not eligible.
For tax year 2025 none of the 1099 forms had a tips box, so whatever your platform sent you was one combined number. The IRS knew that and published transition relief: use a reasonable method to work out your own tip total. Their worked example is a self employed travel guide who keeps a log showing the date, the customer, and the tip amount for every tour.
Read that example again as a shopper. Date, customer, amount, per job. That's the record the IRS says it will accept.
2026 changed the forms. Form 1099-NEC now has box 1b for cash tips and box 1c for the Treasury occupation code. The blank exists. Whether every platform fills it in correctly is somebody else's data problem, and you're the one who eats the mistake.
So when your form shows up next January, check box 1b before anything else. If it's empty, or it's a number you don't recognize, you need your own record of what you were actually tipped to argue with it.
One more wrinkle. The reporting threshold moved from $600 to $2,000 for payments made after December 31, 2025. Shoppers under that line may get no form at all.
Don't cut your January estimate
The predictable way to get hurt here is to hear "no tax on tips," subtract your tips from your quarterly estimate, and come up short in April.
Your self employment tax did not change. Your income tax changed by less than the name suggests. Shaving a thousand dollars off a January 15 estimate because of a deduction worth $66 is a penalty you paid for a headline. The rest of the picture, quarterly estimates and everything you can write off, is in the Shipt shopper tax guide.
And all of this is federal. Whether your state follows the deduction is a separate question with fifty different answers.
Quick answers
Do Shipt shoppers qualify for the no tax on tips deduction?
Yes. Treasury Tipped Occupation Code 804 covers goods delivery people, and the published examples for that code include grocery delivery driver and app/platform-based delivery person.
Does it apply if you're self employed on a 1099?
Yes. Employees and self employed workers both qualify, though for the self employed the deduction can't exceed net income from the business the tips came from.
Does it lower self employment tax?
No. Income tax only. Social Security and Medicare still apply to your full Schedule C profit, tips included.
How much can you deduct?
Up to $25,000 a year, phasing out above $150,000 of modified AGI, $300,000 jointly. Tax years 2025 through 2028.
What if your tips aren't broken out on your 1099?
For 2025 the IRS lets you determine the amount by a reasonable method, backed by your own dated records. From 2026 the number is supposed to appear in box 1b of the 1099-NEC.
What to actually do
- Keep a per order record of every tip, with the date and the amount, separate from base pay. That's the substantiation the transition relief asks for, and it's your only check against box 1b later.
- Keep tracking mileage. It's still worth several times more to you than the tips deduction.
- Read box 1b and box 1c on your 1099-NEC in January before you file anything.
- Build your quarterly estimates on self employment tax first. The tips deduction is a small subtraction at the end, not a reason to send less.
The most useful thing this law did for shoppers wasn't the money. It made a dated, per order record of your tips something the IRS now cares about.
Auto Tip Map is an Android app that saves every order, tip, and address automatically, including tips that land hours after delivery, so the dated per order tip record the IRS wants already exists by the time your 1099 shows up.