No Tax on Tips & Overtime Calculator
Estimate your 2026 federal income-tax savings from the new deductions for qualified tips and overtime pay.
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What your result means
- The deduction lowers taxable income, not your tax bill directly. Your savings equal the deducted amount multiplied by your marginal tax rate — so a $10,000 tips deduction saves a 12%-bracket worker about $1,200, not $10,000.
- Tips are capped at $25,000 per year. Tips above that are still taxed normally. For the self-employed, the deduction also can't exceed the net income of the business in which the tips were earned.
- Overtime is only the "premium" half. You deduct the extra pay above your regular rate — the "½" of time-and-a-half — not the whole overtime check. The cap is $12,500 ($25,000 for joint filers).
- It phases out above $150,000 of income ($300,000 for joint filers), shrinking by $100 for every $1,000 over the line. It disappears entirely well into the six figures.
- Federal income tax only. These deductions do not reduce Social Security or Medicare (FICA) taxes, and most states tax tips and overtime normally — so your state bill is unchanged.
How this calculator works
You enter your filing status, total annual income, qualified tips, and your qualified overtime premium. The tool caps each amount at its statutory limit, applies the income-based phaseout, and subtracts the resulting deductions from your taxable income. It then computes your federal tax both with and without the deductions using the 2026 IRS bracket schedule — the difference is your estimated saving. It assumes you take the standard deduction (the new tips and overtime deductions are available whether or not you itemize) and that your total income is a reasonable stand-in for your modified adjusted gross income. It does not model FICA, state tax, credits, the Earned Income Tax Credit, or self-employment tax.
What affects your savings
- Your marginal bracket. The same $10,000 of tips is worth $1,000 to a 10%-bracket worker and $2,400 to someone in the 24% bracket. Higher earners save more per dollar — until the phaseout claws it back.
- Whether your occupation qualifies. Only tips in occupations that "customarily and regularly" received tips before 2025 count. Treasury has published the official list; if your job isn't on it, your tips don't qualify.
- How your tips are reported. For 2026, only tips separately reported on a Form W-2, 1099-NEC, 1099-MISC, 1099-K, or Form 4137 are deductible.
- Filing jointly. Married joint filers get double the overtime cap ($25,000) and a higher phaseout threshold ($300,000), but the tips cap stays at $25,000.
- The 2025–2028 window. These deductions exist only for tax years 2025 through 2028 under current law unless Congress extends them.
Worked example
Quick questions
Does "no tax on tips" mean my tips are completely tax-free?
No. It's a deduction, not an exemption. You still report your tips as income, but you can subtract up to $25,000 of qualified tips when figuring your federal income tax. Your tips are also still subject to Social Security and Medicare (FICA) taxes, and to most state income taxes.
What counts as "qualified overtime"?
Only the premium portion — the extra half-pay above your regular rate that the Fair Labor Standards Act requires for time-and-a-half. If you earned $9,000 of time-and-a-half overtime, roughly $3,000 of that is the deductible premium. For 2026 this amount is reported separately on your W-2.
Do I have to itemize to claim these?
No. Both the tips and overtime deductions are available whether you take the standard deduction or itemize. You claim them on the new Schedule 1-A that accompanies Form 1040.
Which jobs qualify for the tips deduction?
Treasury and the IRS published a list of occupations that customarily and regularly received tips as of the end of 2024 — servers, bartenders, salon and personal-care workers, delivery and ride-hailing drivers, and many others. If your occupation isn't on that list, your tips don't qualify even if customers tip you.
Why is my saving so much smaller than my tips?
Because a deduction only saves you your marginal tax rate on the deducted amount. Most tipped workers are in the 10% or 12% bracket, so each $1,000 of tips deducted saves $100–$120 of federal tax. The headline "no tax on tips" refers to that income tax, not to FICA or the full dollar amount.
How long will these deductions last?
Under current law they apply to tax years 2025 through 2028. They expire after 2028 unless Congress passes an extension.
Sources
- IRS — How to take advantage of no tax on tips and overtime (deduction caps, phaseout, reporting)
- IRS — Q&A on the new deduction for qualified overtime compensation
- Treasury / IRS — list of qualifying tipped occupations
- Tax Foundation — 2026 federal tax brackets (IRS Rev. Proc. 2025-32)
- Full methodology →
Method & review
Estimate only. Results reflect your inputs and the 2026 federal rules as published — they are not tax, legal, or financial advice. Eligibility, your modified adjusted gross income, state treatment, and self-employment limits can change the outcome. Verify your situation with the IRS instructions for Schedule 1-A or a licensed tax professional before filing.