No Tax on Tips and Overtime Calculator
Enter your income, your qualified tips and your overtime. The calculator applies the new federal deductions, their caps and the income phase-out, and shows the tax you save.
By Muhammad AhmadLast reviewed Oct 21, 2026Free, no sign-up
Estimate, not financial or tax advice. The result is only as good as the numbers you enter and the assumptions listed below the calculator. Rates, tax rules and lender terms change, so check big decisions with the official source or a licensed professional. See the disclaimer.
Example Calculation
A single filer earns $75,000 in total, including $6,000 of qualified tips and 250 hours of overtime at time and a half on a regular wage of $22 an hour. The tips deduction is $6,000. The qualified overtime is only the extra half of the overtime pay: $22 x 0.5 x 250 hours = $2,750. Together the two deductions cut taxable income from $58,900 to $50,150. Federal income tax falls from $7,670 to $5,770, a saving of about $1,900. The filer is in the 22% bracket, and part of the deduction also moves income from the 22% bracket down into the 12% one.
Social Security and Medicare tax do not change. The deductions lower income tax only.
How the income limit reduces the deductions
The deductions shrink by $100 for each $1,000 of modified adjusted gross income (MAGI) above $150,000, or $300,000 for a joint return. Income is a stand-in for MAGI here.
| Income (MAGI), single or head of household | Tips deduction left (cap $25,000) | Overtime deduction left (cap $12,500) |
|---|---|---|
| $150,000 | $25,000 | $12,500 |
| $160,000 | $24,000 | $11,500 |
| $175,000 | $22,500 | $10,000 |
| $200,000 | $20,000 | $7,500 |
| $250,000 | $15,000 | $2,500 |
| $275,000 | $12,500 | $0 |
| $300,000 | $10,000 | $0 |
| $400,000 | $0 | $0 |
| Income (MAGI), married filing jointly | Tips deduction left (cap $25,000) | Overtime deduction left (cap $25,000) |
|---|---|---|
| $300,000 | $25,000 | $25,000 |
| $350,000 | $20,000 | $20,000 |
| $400,000 | $15,000 | $15,000 |
| $500,000 | $5,000 | $5,000 |
| $550,000 | $0 | $0 |
What a deduction is worth at each tax rate
The saving is the deduction times the rate of your top bracket.
| Tax bracket | A $5,000 deduction saves | A $10,000 deduction saves | A $20,000 deduction saves |
|---|---|---|---|
| 10% | $500 | $1,000 | $2,000 |
| 12% | $600 | $1,200 | $2,400 |
| 22% | $1,100 | $2,200 | $4,400 |
| 24% | $1,200 | $2,400 | $4,800 |
| 32% | $1,600 | $3,200 | $6,400 |
How It Works
Two federal income tax deductions began with the 2025 tax year. One is for qualified tips and one is for qualified overtime pay. Both lower the income you pay tax on. They are claimed on your tax return whether you take the standard deduction or itemize, so you do not have to itemize to get them. The IRS says they apply to tax years 2025 through 2028.
Tips. You can deduct up to $25,000 a year of voluntary cash or charged tips you received from customers, including tips shared with co-workers. The tips must come from a job that was already a regular tipping occupation by the end of 2024, and must be on a W-2, a 1099 or Form 4137. Self-employed people can claim it too, up to the net income of the business that earned the tips.
Overtime. You can deduct the part of overtime pay that is above your regular hourly rate, for hours when federal wage law requires a higher rate. In plain words, only the extra half of time and a half counts. If your employer pays double time, only the half-time part that the law requires counts, not the whole extra. The limit is $12,500 a year, or $25,000 on a joint return.
Income limit. Each deduction shrinks once your MAGI passes $150,000 ($300,000 on a joint return), by $100 for every $1,000 above that line. Married people must file jointly, and a valid Social Security number is required for the person who earned the tips or overtime.
The calculator takes the smaller of what you entered and the cap, subtracts the income limit reduction, and subtracts the two deductions from your taxable income. Your tax saving is the difference in federal income tax before and after, from the 2026 brackets. State income tax, Social Security and Medicare tax are not changed by this calculator. Some states follow the federal deductions and others do not, so check your state.
Formula Explained
tips deduction = smaller of (tips, $25,000) - $100 x (MAGI - threshold) / $1,000, never below zero. The threshold is $150,000, or $300,000 for a joint return.
overtime deduction = smaller of (qualified overtime, cap) - the same reduction, never below zero. The cap is $12,500, or $25,000 for a joint return. Qualified overtime is regular rate x 0.5 x overtime hours.
tax saved = tax on (income - standard deduction) - tax on (income - standard deduction - both deductions), worked out with the 2026 federal brackets.
Assumptions and limits
- Tax year 2026. Brackets and standard deductions come from IRS Revenue Procedure 2025-32.
- Your total income stands in for modified adjusted gross income (MAGI). MAGI adds back a few exclusions, such as foreign earned income, that most people do not have.
- You take the standard deduction and have no other deductions, credits or income adjustments. Real returns can differ.
- Tips qualify only in occupations on the IRS list and only if they are reported. Qualified overtime is the half-time part that the Fair Labor Standards Act requires. Whether your pay qualifies depends on your job and your employer’s pay records.
- The deductions apply to tax years 2025 through 2028.
Frequently Asked Questions
Is overtime pay tax-free now?
No. The new rule is a federal income tax deduction for the premium part of overtime pay, up to $12,500 a year ($25,000 on a joint return), for tax years 2025 through 2028. Your regular pay and the rest of your overtime pay are taxed as before, and Social Security and Medicare tax still apply.
How much of my overtime can I deduct?
Only the part above your regular rate for hours that the Fair Labor Standards Act requires overtime pay for. At time and a half that is the extra half. On a $22 hourly wage and 250 overtime hours it is $22 x 0.5 x 250 = $2,750. At double time the deduction still counts only the half-time part (for example $1,500 on 100 hours at $30), because that is all the law requires.
How much is the tips deduction?
Up to $25,000 a year, however your return is filed. It covers voluntary cash or charged tips you received from customers, including shared tips, in a job that was already a regular tipping occupation by the end of 2024.
What is the income limit for these deductions?
Each deduction is reduced when modified adjusted gross income (MAGI) is over $150,000, or $300,000 on a joint return. The reduction is $100 for each $1,000 of income above the limit, and it cannot go below zero. A single filer with $25,000 of tips loses the whole tips deduction at about $400,000 of income.
Which tips qualify?
The IRS describes qualified tips as amounts customers choose to give you in cash or on a card, including tips split with co-workers, earned in a qualifying job. They must be reported on a Form W-2, a Form 1099 or Form 4137. A fee that customers must pay is not a voluntary tip. The IRS publishes the list of occupations.
Do I need to itemize to claim them?
No. The IRS says both deductions are yours to claim with the standard deduction too, so itemizing is not required.
Do married couples have to file together?
Yes. If you are married, you must file a joint return to claim either deduction, and the person who received the tips or overtime must have a valid Social Security number.
Do these deductions lower Social Security and Medicare tax?
No. They are income tax deductions. Tips and overtime pay are still wages for Social Security and Medicare tax, and your paycheck still shows those taxes.
How do I claim the deductions?
The IRS created Schedule 1-A for Form 1040, where you work out the amounts. For 2025 an employer did not have to report qualified overtime separately, and for 2026 and later employers must report it, so keep your pay records and use the Schedule 1-A instructions if you have no statement of the amount.
Can self-employed workers deduct tips?
Employees and self-employed people can both claim the tips deduction. For the self-employed it cannot be more than the net income of the business that earned the tips, and tips earned in a specified service trade or business generally do not qualify.
Do states follow the federal tips and overtime deductions?
It varies. Some states start from federal taxable income and pass the deduction on. Others use their own rules or have not adopted it. This calculator estimates federal income tax only.
How long do the deductions last?
They apply to tax years 2025 through 2028 under the law that created them, and no deduction is allowed for a year that starts after December 31, 2028.
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Methodology and sources
The calculator applies sections 224 and 225 of the Internal Revenue Code as the IRS describes them: a $25,000 cap on the tips deduction, a $12,500 cap ($25,000 joint) on the overtime deduction, and a reduction of $100 for each $1,000 of modified adjusted gross income above $150,000 ($300,000 joint). The tax saving is the difference in federal income tax on your taxable income before and after, from the 2026 brackets.
- What the “No Tax on Tips” deduction means for you, Internal Revenue Service
- What to know about the No Tax on Overtime deduction, Internal Revenue Service
- Questions and answers about the new deduction for qualified overtime compensation, Internal Revenue Service
- Notice 2025-69: Guidance for individual taxpayers who received qualified tips or qualified overtime compensation, Internal Revenue Service
- 26 U.S. Code 224: Deduction for qualified tips, Legal Information Institute, Cornell Law School
- 26 U.S. Code 225: Deduction for qualified overtime compensation, Legal Information Institute, Cornell Law School
- Revenue Procedure 2025-32 (2026 inflation adjustments: brackets, standard deduction, credits), Internal Revenue Service
Last reviewed Oct 21, 2026 by Muhammad Ahmad. The page is checked again when the source figures change and at least once a year. See the corrections log, or report a mistake.
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