About the No Tax on Tips & Overtime Calculator
This calculator estimates the new federal deductions for qualified tips and qualified overtime compensation created by the One Big Beautiful Bill Act for tax years 2025 through 2028. Enter the tips you received, your overtime pay, your filing status and your modified adjusted gross income (MAGI) to see how much you can deduct and roughly how much federal income tax that saves.
It is built for servers, bartenders, hairstylists, delivery drivers and other workers in tipped occupations, and for hourly employees who earn FLSA overtime. Both deductions are available whether you itemize or take the standard deduction, but they only reduce federal income tax — Social Security, Medicare and most state income taxes still apply to the same pay.
Assumptions: tips are capped at $25,000 per return; only the overtime premium (the “half” in time-and-a-half) qualifies, capped at $12,500, or $25,000 on a joint return. Each deduction is reduced by $100 for every full $1,000 of MAGI above $150,000 ($300,000 joint). Married couples must file jointly, and a valid Social Security number is required. Self-employed workers can deduct tips only up to the net profit of that business, and tips earned in a specified service trade or business (such as health, law or consulting) do not qualify. The caps and thresholds are set in the statute and are not indexed for inflation, so the same figures apply for 2026; the phase-out follows the line-by-line method of the 2025 Schedule 1-A.
With the default inputs, the total tips + overtime deduction is $15,000.00. Change any value above to recalculate instantly.
How to use the no tax on tips & overtime calculator
- 1Choose your filing status — married couples must file jointly to qualify.
- 2Enter your modified adjusted gross income for the year.
- 3Enter qualified tips from your W-2 box 7, Form 4137 or 1099 statements.
- 4Enter overtime pay and say whether it is the total 1.5× pay or just the premium.
- 5Pick your federal bracket to estimate the income tax you save.
Formula and method
Each deduction starts from the smaller of your qualifying amount and its cap: $25,000 for tips (per return) and $12,500 for the overtime premium ($25,000 for married filing jointly). The overtime premium is the extra pay above your regular rate required by the Fair Labor Standards Act; with time-and-a-half it equals one third of total overtime pay.
If MAGI exceeds $150,000 ($300,000 joint), each deduction is reduced by $100 for every full $1,000 of excess (Schedule 1-A rounds the excess down to whole thousands), so the tips deduction disappears completely around $400,000 of MAGI for a single filer. The estimated tax saving multiplies the total deduction by your marginal federal bracket, which is a close approximation when the deduction does not push you into a lower bracket.
- MAGI
- Modified adjusted gross income
- T
- Phase-out threshold: $150,000, or $300,000 for joint filers
- Premium
- Overtime pay above the regular rate (total 1.5× overtime ÷ 3)
- Cap
- $12,500 overtime cap ($25,000 joint)
Worked examples
Single server with $12,000 tips and $9,000 overtime
All $12,000 of tips is deductible because it is under the $25,000 cap. Of $9,000 in time-and-a-half overtime, only the one-third premium ($3,000) qualifies. The $15,000 total deduction saves about $1,800 in the 12% bracket.
Married couple over the phase-out threshold
MAGI is $20,000 over the $300,000 joint threshold, so each deduction is cut by 20 × $100 = $2,000. Tips are capped at $25,000, leaving $23,000, and the $20,000 overtime premium becomes $18,000. The $41,000 deduction saves about $9,840 at 24%.
Single filer with a partial $1,000 step
MAGI exceeds $150,000 by $25,500, which contains 25 full $1,000 steps, so each deduction falls by $2,500. Tips of $10,000 become $7,500 and the $5,000 overtime premium becomes $2,500, for a $10,000 deduction worth about $3,200 at 32%.
Married filing separately
Married taxpayers who file separately cannot claim either deduction, so the result is $0 no matter how much was earned in tips or overtime.
Frequently asked questions
Is there really no tax on tips?+
Not entirely. From 2025 through 2028 you can deduct up to $25,000 of qualified tips from federal taxable income, but tips are still subject to Social Security and Medicare tax and usually to state income tax.
Does all overtime pay qualify for the deduction?+
No. Only the premium portion required by the Fair Labor Standards Act qualifies — for time-and-a-half, the extra half. If you earn $30/hour and $45 for overtime hours, only $15 per overtime hour counts.
Do I need to itemize to claim these deductions?+
No. The tips and overtime deductions are taken in addition to the standard deduction (on Schedule 1-A), so both itemizers and non-itemizers can claim them.
What income is too high for the tips deduction?+
Each deduction shrinks by $100 per $1,000 of MAGI above $150,000 ($300,000 for joint filers). A full $25,000 tips deduction phases out completely at $400,000 of MAGI for single filers and $550,000 for joint filers.
Which jobs count as tipped occupations?+
The IRS publishes a list of occupations that customarily and regularly received tips before 2025, such as restaurant servers, bartenders, hair stylists and delivery drivers. Tips must be voluntary — mandatory service charges do not qualify.
How long do the tips and overtime deductions last?+
They apply to tax years 2025, 2026, 2027 and 2028 under current law. Unless Congress extends them, they expire after the 2028 tax year.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.