How much will "no tax on tips" and overtime save me?
For tax years 2025–2028, you may deduct up to $25,000 of qualified tips and up to $12,500 of qualified overtime premium ($25,000 on a joint return). Each deduction shrinks by $100 for every full $1,000 of MAGI above $150,000 ($300,000 joint). Married filing separately can't claim either, and Social Security and Medicare taxes still apply.
Estimate your deductions
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Your result
Choose a tax year and filing status, then enter your MAGI and your tips or overtime to see your deductions and estimated tax saving.
Email me my deduction estimate + a records checklist
We'll send your numbers and a short list of the pay records that support qualified tips and overtime.
Caps and phase-out thresholds
The reduction is $100 for each full $1,000 of MAGI over the threshold, applied to the capped amount. A maximum claim is fully phased out at: threshold + (cap ÷ $100) × $1,000.
| Deduction | Filing status | Maximum | Phase-out starts (MAGI) | Fully phased out at |
|---|---|---|---|---|
| Qualified tips | Single, head of household, surviving spouse | $25,000 | $150,000 | $400,000 |
| Qualified tips | Married filing jointly (cap is per return) | $25,000 | $300,000 | $550,000 |
| Qualified overtime | Single, head of household, surviving spouse | $12,500 | $150,000 | $275,000 |
| Qualified overtime | Married filing jointly | $25,000 | $300,000 | $550,000 |
| Both | Married filing separately | Not allowed | — | — |
Example: tips fully phase out at $150,000 + $25,000 ÷ $100 × $1,000 = $400,000. Years covered: 2025–2028.
How does the tips and overtime calculator work?
The calculator applies IRC §224 (qualified tips) and IRC §225 (qualified overtime), added by the One Big Beautiful Bill Act, and the IRS reasonable methods in Notice 2025-69:
- Eligibility. The tax year must be 2025–2028. Married taxpayers must file jointly. You need a work-authorized SSN. Tips count only in an occupation that customarily and regularly received tips on or before December 31, 2024. Overtime counts only if the FLSA required it.
- Overtime premium. Only the pay above your regular rate qualifies. If you enter total overtime pay, premium = total ÷ 3 at time-and-a-half, or total ÷ 4 at double time (only the FLSA "half" counts).
- Cap. Capped amount = min(amount, cap). Caps: tips $25,000 per return; overtime $12,500 ($25,000 joint).
- Phase-out. Reduction = ⌊(MAGI − threshold) ÷ $1,000⌋ × $100. Partial thousands are dropped, following the 2025 Schedule 1-A. Threshold: $150,000 ($300,000 joint).
- Deduction = max(0, capped amount − reduction), worked out separately for tips and for overtime.
- Tax saved. If you pick a bracket: deduction × bracket rate. Otherwise we treat MAGI as wages and use the standard deduction for your filing status. We compute tax on (MAGI − standard deduction) and on (MAGI − standard deduction − deductions) and take the difference. That uses the 2026 brackets and standard deduction ($16,100 single, $32,200 joint) for 2026, and the 2025 brackets and standard deduction ($15,750 single) for 2025.
What the calculator does not model: tax credits, itemized deductions, the senior deduction and other income types. It also leaves out the self-employed limit (tips count only up to the business's net profit) and the specified service trade or business (SSTB) exclusion. Notice 2025-69 gives transition relief for the SSTB rule: the IRS treats tips in a listed tipped occupation as not coming from an SSTB until final regulations apply. The results are estimates.
Worked examples
Three workers, computed with this calculator and the figures on this page (tax saved uses "estimate it for me").
| Situation | Tips deduction | Overtime deduction | Total deduction | Est. federal income tax saved |
|---|---|---|---|---|
| Restaurant server, single, tax year 2026. MAGI $48,000 (includes $16,000 of tips reported to the employer). No overtime. | $16,000 | — | $16,000 | $1,920 |
| Construction worker, single, tax year 2025. MAGI $82,000. Pay stubs show $18,000 of total overtime pay at time-and-a-half (premium = $18,000 ÷ 3). | — | $6,000 | $6,000 | $1,320 |
| Married couple filing jointly, tax year 2026. MAGI $340,000. One spouse is a bartender with $20,000 of tips; the other is an hourly nurse with a $10,000 overtime premium. | $16,000 (minus $4,000 phase-out) | $6,000 (minus $4,000 phase-out) | $22,000 | $5,280 |
These examples are generated by running this calculator's own code with the figures on this page, so they always match what the tool shows.
Frequently asked questions
Is overtime tax-free in 2026?
Not entirely. For 2025–2028 you may deduct the qualified overtime premium, meaning the extra pay above your regular rate that the FLSA requires. The cap is $12,500 ($25,000 on a joint return), and it phases out above $150,000 of MAGI ($300,000 joint). Your regular pay for those hours is still taxed. Social Security and Medicare taxes still apply to all of it, and many states still tax it.
Do I still pay Social Security and Medicare tax on tips?
Yes. The tips deduction lowers only your federal income tax. Tips are still subject to Social Security and Medicare (FICA) taxes, or self-employment tax if you are self-employed. That is also why you should keep reporting all your tips to your employer.
Can married filing separately claim the tips or overtime deduction?
No. If you are married, you must file a joint return to claim either deduction (IRC §224(f) and §225(e)).
What counts as qualified overtime?
Only the premium portion of overtime that FLSA section 7 requires, generally the "half" in time-and-a-half for hours over 40 in a workweek. Some overtime doesn't qualify: overtime paid only because of a state law, a union contract or company policy (for example, daily overtime or double time beyond the FLSA premium). Overtime of salaried "exempt" employees doesn't count either. If you are paid double time, only the FLSA half-time premium counts, which is the total double-time pay ÷ 4.
How do I prove my 2025 overtime if my W-2 doesn't show it?
For 2025, the IRS did not change Form W-2, and it gave employers penalty relief for not reporting overtime separately (Notice 2025-62). Notice 2025-69 lets you use a reasonable method:
- a year-end statement or pay stub that shows the FLSA overtime premium separately;
- your total overtime pay ÷ 3 if you were paid time-and-a-half and only the total is shown;
- your total overtime pay ÷ 4 if you were paid double time and only the total is shown;
- or another reasonable method based on your regular rate and your hours over 40. Asking your employer is one.
Keep the records you used. For 2026, employers report qualified overtime on Form W-2 in box 12 with code TT.
How do I show my qualified tips?
For 2025, you can use the Social Security tips in W-2 box 7, the tips you reported to your employer on Form 4070, any amount your employer voluntarily shows in box 14 or on a separate statement, and tips you reported on Form 4137. For 2026, tips appear on Form W-2 in box 12 with code TP, with an occupation code in box 14b. On Forms 1099-NEC, 1099-MISC and 1099-K they have their own boxes.
Do I have to itemize to get these deductions?
No. You can take them on top of the standard deduction. They are not "above-the-line" deductions, though. They reduce taxable income but not your adjusted gross income (AGI), so AGI-based limits elsewhere on your return don't change. For 2025 they are claimed on Schedule 1-A.
Which jobs qualify for no tax on tips?
The tips must come from an occupation that customarily and regularly received tips on or before December 31, 2024. Treasury published a proposed list of these occupations in regulations REG-110032-25 (90 FR 45340), and IRS Notice 2025-69 says taxpayers may rely on it. The tips must also be voluntary, meaning not a required service charge. Tips from a specified service trade or business are excluded, with transition relief for listed tipped occupations.
Disclaimer: This tool provides general estimates for educational purposes and is not tax, legal or accounting advice. Results depend on facts not captured here. Consult a qualified professional before acting.
Sources
- law.cornell.edu: https://www.law.cornell.edu/uscode/text/26/224
- law.cornell.edu: https://www.law.cornell.edu/uscode/text/26/225
- irs.gov: https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf
- law.cornell.edu: https://www.law.cornell.edu/uscode/text/26/63
- irs.gov: https://www.irs.gov/pub/irs-drop/n-25-69.pdf
- irs.gov: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- irs.gov: https://www.irs.gov/pub/irs-drop/rp-24-40.pdf
- IRS Notice 2025-62 (2025 reporting penalty relief for employers): https://www.irs.gov/pub/irs-drop/n-25-62.pdf
