No Tax on Tips Calculator (2025–2028)
The "No Tax on Tips" deduction lets workers in Treasury-listed tipped occupations deduct up to $25,000 of qualified tips from federal taxable income for 2025–2028, per the IRS. For example, a server reporting $18,000 in tips with $50,000 total income saves about $2,160 in federal tax.
How it works
Deduction = min(qualified tips, $25,000) − 10% × max(0, MAGI − $150,000 or $300,000 joint)
- Qualified tips are voluntary cash or charged tips (including tip pools) received in an occupation on the Treasury's list of roughly 70 customarily tipped occupations — servers, bartenders, barbers, drivers, and more. Mandatory service charges are not tips and do not qualify (IRS).
- The deduction is capped at $25,000 per return and shrinks by $100 for every $1,000 of modified AGI above $150,000 ($300,000 joint). It is available whether you take the standard deduction or itemize, and is claimed on Schedule 1-A. Married taxpayers must file jointly.
- Your federal savings ≈ deduction × your marginal tax bracket. FICA (7.65%) still applies to every tip dollar, most states still tax tips, and self-employed workers cannot deduct more than that business's net income. The deduction applies for tax years 2025–2028.
Worked example
A bartender with $30,000 in reported tips and $80,000 total income (single): deduction capped at $25,000; no phase-out below $150,000 MAGI; at the 22% bracket that saves about $5,500 in federal income tax. FICA on the tips (about $2,295) still applies.
How much can the tips deduction save? (2026 examples, single filer)
| Scenario | Deduction | Est. federal savings |
|---|---|---|
| Server — $18,000 tips, $50K income | $18,000 | ≈ $2,160 (12%) |
| Bartender — $30,000 tips, $80K income | $25,000 (capped) | ≈ $5,500 (22%) |
| High earner — $20,000 tips, $160K MAGI | $19,000 (phase-out −$1,000) | ≈ $4,560 (24%) |
Common misconception: tips are not "tax-free" now. According to the IRS, Social Security and Medicare taxes still apply to every reported tip, tips must still be reported as always, and only federal income tax on up to $25,000 of qualified tips is offset. Workers in occupations not on the Treasury list get no deduction.
Working overtime too? The same law created a separate overtime deduction — you can claim both. Learn how overtime is taxed, or see your full paycheck with our state paycheck calculators.
Data & sources
- IRS — What the No Tax on Tips deduction means for you
- Treasury/IRS — Final regulations: occupations that customarily receive tips
- IRS — Schedule 1-A for tips, overtime, car loan, and senior deductions
Last updated:
Frequently asked questions
Are tips really tax-free now?
No. The OBBBA created a federal income tax deduction of up to $25,000 for qualified tips in 2025–2028 — not an exemption. FICA taxes (7.65%) still apply to every reported tip, and most states still tax tip income.
Who qualifies for the tips deduction?
Workers — employees and self-employed — in an occupation on the Treasury's list of roughly 70 customarily tipped occupations, such as servers, bartenders, hairstylists, and taxi drivers. Tips must be voluntary and properly reported. Married taxpayers must file jointly, and a work-eligible Social Security number is required.
What counts as a qualified tip?
Voluntary cash or charged tips from customers, including amounts from tip pools. Automatic service charges (like a mandatory 18% gratuity for large parties) are wages, not tips, and do not qualify.
What is the income limit for the tips deduction?
The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (joint), per the IRS. At the full $25,000 cap it disappears entirely at $400,000 single / $550,000 joint.
Do I need to itemize to claim it?
No. The tips deduction is available with the standard deduction or itemizing. It is claimed on Schedule 1-A of Form 1040 for tax years 2025 through 2028.
Can I claim both the tips and overtime deductions?
Yes. They are separate deductions under the same law — a tipped worker with FLSA overtime can claim up to $25,000 in qualified tips and up to $12,500 ($25,000 joint) for the overtime premium, each subject to its own rules and the same income phase-out thresholds.