No Tax on Tips and Overtime Calculator (2026)
Estimate the federal deductions for qualified tips and overtime premium pay.
How the No Tax on Tips and Overtime Calculator Works
This no tax on tips and overtime calculator estimates the new federal deductions for qualified tips and qualified overtime pay under the 2025 tax law changes. Enter your regular wages, your qualified tips and your total overtime pay, choose a filing status, and see how much the deductions reduce your 2026 federal income tax. The deductions lower income tax only: Social Security and Medicare still apply to every dollar of tips and overtime.
What the new deductions do
Congress created two new federal deductions that apply for tax years 2025 through 2028. The qualified tips deduction lets workers in occupations that customarily and regularly receive tips deduct up to $25,000 of voluntary tips received from customers, including tips shared through a tip pool. The qualified overtime deduction lets workers deduct the premium portion of overtime pay required by the Fair Labor Standards Act, meaning the extra half in time-and-a-half, up to $12,500 for single filers and $25,000 for joint filers. Both deductions phase out for modified adjusted gross income above $150,000 for single filers and $300,000 for joint filers.
These are deductions from taxable income, not exclusions from wages, and they can be claimed whether you itemize or take the standard deduction. They do not reduce Social Security or Medicare tax, and most states continue to tax tips and overtime unless they adopt their own rules, so your state paycheck is not automatically affected. Read our US paycheck guide for how withholding works.
How the calculator estimates the deductions
The tool adds your regular wages, tips and overtime pay to get total income, then applies the 2026 standard deduction of $16,100 for single filers or $32,200 for joint filers. It caps the tips deduction at $25,000 and estimates the overtime premium as one third of total overtime pay, which is correct when overtime is paid at time-and-a-half, then caps that amount at $12,500 or $25,000. If total income exceeds the phase-out threshold, each deduction is reduced by $100 for every $1,000 over the threshold. Federal tax is calculated with and without the deductions using the 2026 brackets, and the difference is your estimated savings. Your actual deduction depends on details such as which overtime hours are qualified and whether your tips come from an eligible occupation.
Worked example: a server with $30,000 in tips
A single server earns $20,000 in regular wages, $30,000 in qualified tips and $9,000 in overtime pay, for total income of $59,000. The tips deduction is capped at $25,000, and the overtime premium is about $3,000. Taxable income falls by $28,000 after the deductions, and federal income tax drops from about $4,900 to $1,540, a savings of roughly $3,360. FICA of $4,514 is unchanged.
A single hourly worker with $45,000 in regular wages, $20,000 in tips and $15,000 in overtime pay has total income of $80,000, a tips deduction of $20,000 and an overtime premium deduction of $5,000, and federal tax falls by about $4,350. A married couple with $60,000 in wages, $15,000 in tips and $18,000 in overtime pay has total income of $93,000 and saves about $2,520 of federal tax. Try your own numbers above.
Who qualifies for the tips deduction
The tips deduction is limited to occupations that customarily and regularly received tips before 2025, according to a list published by the Treasury. Waiters, bartenders, hair stylists, rideshare and delivery drivers, casino dealers, personal trainers and many other workers are on the list, and the tips must be voluntary, paid by a customer or shared through a tip pool. Mandatory service charges do not count. Workers need a valid Social Security number, and the tips must be reported to the employer or on the appropriate form. Self-employed workers can deduct only up to their net income from the business that earned the tips. Check the current Treasury list and IRS guidance to confirm your job qualifies.
Who qualifies for the overtime deduction
The overtime deduction applies only to overtime required under the Fair Labor Standards Act, meaning hours over 40 in a workweek for non-exempt employees, and only to the premium portion above the regular rate. Overtime paid under a union contract or state law for hours that federal law does not treat as overtime, such as daily overtime under some state rules, generally does not qualify unless federal law would also require it. Salaried exempt employees do not qualify. Employers will report qualified overtime and tips on year-end forms, and for 2025 the IRS provided transition guidance for filers whose W-2 does not show the amounts.
How this affects your paycheck withholding
The deductions are claimed on your tax return, so your paycheck may not change unless you adjust your Form W-4. If you expect a large deduction, you can reduce withholding on the W-4 by claiming the deductions in the deductions worksheet, but be careful not to under-withhold. Many workers will see the benefit as a larger refund. Use the W-4 withholding calculator or the IRS Tax Withholding Estimator to align withholding with your expected tax, and read how to fill out the W-4 for the steps.
Examples by job type
The deductions matter most for workers whose income comes largely from tips or regular overtime. A bartender with $18,000 in wages and $32,000 in tips can deduct the first $25,000 of tips, which removes roughly half of taxable income after the standard deduction and can cut federal income tax by more than $2,000. A rideshare or delivery driver whose tips are reported on Form 1099 can deduct tips up to the limit but only to the extent of net profit from the business. A hair stylist who receives tips through a salon and reports them to the employer can deduct qualified tips reported on the W-2. A warehouse or factory worker who regularly works 8 to 10 hours of overtime a week can deduct the premium half of that overtime, which may reach the $12,500 cap for high-overtime schedules. The calculator lets you test each of these situations by changing the wage, tip and overtime fields.
Records to keep
Good records make these deductions safe to claim. Keep a daily tip log or the tip reports you give your employer, save every pay stub showing overtime hours and the overtime rate, and keep your final W-2 and any Form 4137 or 1099 forms. If your W-2 does not separately show qualified tips or overtime premium pay, you will need supporting records to compute the amounts. Digital time-tracking apps and payroll portals often let you export overtime hours by pay period. Because tax guidance for these new deductions is still evolving, check IRS.gov each year for updated forms and instructions.
State taxes and other federal benefits
The deductions apply to federal income tax only. Your state may follow, ignore or partially adopt them, so a state paycheck calculator on our paycheck calculators by state hub shows the state tax on the full amount of tips and overtime. Lower federal taxable income can also affect credits and benefits that depend on income, such as the earned income credit and premium tax credits, so run a full tax estimate rather than relying on a single calculator. Tax professionals can help if your situation includes multiple jobs, self-employment income or large tip amounts.
Common mistakes with the new deductions
- Deducting all overtime pay. Only the premium half of time-and-a-half qualifies.
- Expecting FICA to fall. Social Security and Medicare still apply.
- Assuming states follow. Many states still tax tips and overtime.
- Ignoring the phase-out. Higher earners lose the deduction.
- Not keeping records. Keep a log of tips and pay stubs showing overtime hours.
Key takeaways
- Qualified tips are deductible up to $25,000 and overtime premium pay up to $12,500 ($25,000 joint) for 2025 to 2028.
- Both deductions phase out above $150,000 ($300,000 joint) of income.
- They reduce federal income tax only; FICA still applies.
- Claim them on your return and adjust your W-4 if needed.
- Confirm eligibility with IRS guidance and the Treasury occupation list.
No Tax on Tips and Overtime results at a glance
These are the calculator's results at different values of regular wages, not tips or overtime, with every other input left at the example values above (the bold row is the example). Use them to see how quickly the result changes before entering your own numbers.
| Regular wages, not tips or overtime | Estimated federal tax savings | Total income | Federal income tax without the deductions |
|---|---|---|---|
| $10,000 | $3,210.00 | $49,000.00 | $3,700.00 |
| $15,000 | $3,310.00 | $54,000.00 | $4,300.00 |
| $20,000 | $3,360.00 | $59,000.00 | $4,900.00 |
| $25,000 | $3,360.00 | $64,000.00 | $5,500.00 |
| $30,000 | $3,610.00 | $69,000.00 | $6,350.00 |
| $40,000 | $4,610.00 | $79,000.00 | $8,550.00 |
| $60,000 | $6,160.00 | $99,000.00 | $12,950.00 |
How filing status changes the result
The same example with each filing status option:
| Filing status | Estimated federal tax savings | Total income | Federal income tax without the deductions |
|---|---|---|---|
| Single | $3,360.00 | $59,000.00 | $4,900.00 |
| Married filing jointly | $2,720.00 | $59,000.00 | $2,720.00 |
What changing qualified tips received in the year does
Holding everything else at the example values, here is the effect of qualified tips received in the year:
| Qualified tips received in the year | Estimated federal tax savings | Total income | Federal income tax without the deductions |
|---|---|---|---|
| $15,000 | $2,110.00 | $44,000.00 | $3,100.00 |
| $30,000 | $3,360.00 | $59,000.00 | $4,900.00 |
| $45,000 | $4,110.00 | $74,000.00 | $7,450.00 |
| $60,000 | $5,610.00 | $89,000.00 | $10,750.00 |
Deduction value at common tip and overtime amounts
The federal income tax saved depends on your bracket. For a single filer below the phase-out:
| Qualified tips or overtime premium deducted | In the 10% bracket | In the 12% bracket | In the 22% bracket |
|---|---|---|---|
| $2,000 | $200 | $240 | $440 |
| $5,000 | $500 | $600 | $1,100 |
| $10,000 | $1,000 | $1,200 | $2,200 |
| $12,500 | $1,250 | $1,500 | $2,750 |
| $25,000 | $2,500 | $3,000 | $5,500 |
Tip deductions are capped at $25,000 per return; overtime deductions at $12,500 ($25,000 for joint filers). Social Security, Medicare and most state taxes still apply.
Planning for the deductions during the year
Because the deductions are claimed on your return, the benefit usually arrives as a larger refund. If you would rather have it in each paycheck, estimate your qualified tips or overtime premium for the year and enter the deduction in Step 4(b) of Form W-4, using the deductions worksheet that comes with the form. Start with a conservative estimate, such as last year's amount, so a slow season does not leave you owing.
Common Questions
What is the no tax on tips deduction?
It is a federal deduction of up to $25,000 of qualified tips per year for workers in occupations that customarily receive tips, available for tax years 2025 through 2028 and phased out at higher incomes.
How much overtime is deductible?
The premium portion of FLSA overtime, meaning the extra half in time-and-a-half, up to $12,500 for single filers and $25,000 for joint filers.
Do I still pay Social Security and Medicare on tips and overtime?
Yes. The deductions reduce income tax only, not FICA.
Is tip income taxed by my state?
Most states still tax tips and overtime because the deductions are federal. Check your state rules.
When do the deductions phase out?
They are reduced by $100 for each $1,000 of modified adjusted gross income above $150,000 for single filers or $300,000 for joint filers.
Do I need to itemize to claim them?
No. You can claim them with the standard deduction.
Are tips subject to Social Security and Medicare tax?
Yes. Reported tips are wages for FICA, even though qualified tips can be deducted from federal income tax.
Can gig workers deduct tips?
Gig workers in eligible occupations can deduct qualified tips, but only up to the net income of the business that earned them.
Do I need receipts for the tip deduction?
Keep records of tips you reported to your employer and any tip reports; for most employees, tips reported on the W-2 are the main record.
Do self-employed workers qualify for the tips deduction?
Yes, if the tips are in an occupation that customarily receives tips, but business expenses and other rules limit the deduction.
Is the tips deduction available in 2029?
Not under current law. The tip and overtime deductions apply to tax years 2025 through 2028.
Do tips paid in cash qualify?
Yes, if they are reported and otherwise qualify; unreported tips cannot be deducted.
How to check this calculator
This calculator shows the tax year, assumptions, inputs, and worked examples used to explain the estimate. Where result tables are provided, you can enter the example values in the calculator and compare the output with the displayed example to reproduce the calculation.
Tax and payroll rules can change, and a calculator estimate is not the same as an employer payroll statement or filed tax return. For an important decision, compare the result with your pay stub and the relevant official IRS, Social Security Administration, Department of Labor, or state guidance. See our methodology and editorial approach for source and review information.
Results are estimates for education only and are not financial, tax or legal advice.