No Tax on Tips Calculator

How the "no tax on tips" deduction works

The One Big Beautiful Bill Act (signed July 2025) added a temporary federal deduction, at Internal Revenue Code §224, for qualified tips. It is claimed on Schedule 1-A after your AGI is figured, so it does not reduce your AGI, though you can still take it whether or not you itemize, on top of your standard deduction.

Annual cap. Up to $25,000 of qualified tips per year, for tax years 2025 through 2028. This is a single per-return limit — it is not doubled for married couples filing jointly.

Which tips qualify. Cash and charged tips (cash, check, card, or tokens exchangeable for cash) paid voluntarily by the customer, in an occupation that "customarily and regularly" receives tips — the Treasury has published the list of qualifying occupations, and you can check whether your job is on it. Mandatory service charges (an automatic 18% on a large party, for example) are not tips and don't count.

Income phase-out. The deduction shrinks by $100 for every $1,000 your modified adjusted gross income (MAGI) is over $150,000 (single) or $300,000 (joint), reaching zero at $400,000 / $550,000.

It's a deduction, not a refund. It lowers your taxable income, so the dollar you save is roughly the deduction times your marginal tax rate. And it's income-tax only: Social Security and Medicare still apply to tips, and you still report all your tips as normal — you claim the deduction when you file.

Work overtime too? There's a matching no tax on overtime calculator. 65 or older? The same law also added a $6,000 senior bonus deduction — the one marketed as "no tax on Social Security." Itemizing in a high-tax state? It also raised the SALT deduction cap to $40,000. Bought a new car? You can also deduct up to $10,000 of the loan interest — see the car loan interest deduction calculator.

A worked example: Renata, a restaurant server

Renata is single. Last year she earned about $52,000 in all — $34,000 in wages plus $18,000 in tips. Here's how the deduction plays out:

• Qualified tips: her $18,000 of cash and card tips is below the $25,000 cap, and her $52,000 income is far under the $150,000 phase-out line, so all $18,000 is deductible.
• Federal tax saved: that $18,000 comes off income taxed in her 12% bracket, cutting her federal income tax by about $2,160 ($18,000 × 12%).
• What doesn't change: Social Security and Medicare were still owed on all $18,000 of tips, and she still reports every tip as usual — the $2,160 shows up as a bigger refund when she files.

Remember the cap is a flat $25,000 per return, not per person — a married couple filing jointly still shares one $25,000 limit, it isn't doubled.

Who can claim it

You need a Social Security number valid for employment, and if you're married you must file jointly (married filing separately is not eligible). Both employees (tips on your W-2) and self-employed workers can claim it — the self-employed are limited to their net business income, and specified service businesses are excluded. You must work in one of the occupations the Treasury lists as customarily tipped — look up your occupation and its Box 14b code here.

Does your state tax tips?

This deduction is federal. Whether it also lowers your state income tax depends on your state — many states do not conform, some conform only from 2026, and nine states have no wage income tax at all. Pick your state above to see its treatment, or open your state's paycheck calculator for the detail.

Common questions

Are all my tips tax-free now? No. Only up to $25,000 is deductible, only for federal income tax, and only for 2025–2028. Social Security and Medicare still apply, and your state may still tax tips.

Do mandatory service charges count? No. An automatic gratuity or service charge added by the business is treated as wages, not a voluntary tip, so it doesn't qualify.

What is MAGI? Modified adjusted gross income is your adjusted gross income plus a few add-backs, mainly foreign-income exclusions — for almost everyone it's the same as your AGI. It's the income figure the phase-out above uses.

What is FICA? FICA is the Social Security (6.2%) and Medicare (1.45%) payroll tax withheld from your pay. It's separate from federal income tax, and this deduction doesn't reduce it — FICA is still owed on your tips.

What is filing status? It's the category you file under — single, married filing jointly, or head of household here. It sets your phase-out thresholds. Married workers must file jointly to claim this deduction; married filing separately can't.

Is anything saved or uploaded? No. The tool is fully client-side — your numbers never leave your browser.

Sources: IRS, tax deductions for working Americans and seniors; Treasury final regulations on qualifying tipped occupations; IRS Notice 2025-69.