No Tax on Tips Calculator
Your qualified tips deduction and federal tax saved for 2025 or 2026
Last updated: October 2026 · IRS Schedule 1-A and Notice 2025-69 rules
Your income
Cash and card tips you reported, including tip-pool shares. Not service charges.
A spouse's income, interest, a second job.
Eligibility
See IRS.gov/TippedOccupations.
Tips deduction
$18,000
Schedule 1-A, line 13
Federal income tax saved
$2,030
tax year 2026
FICA still due on tips
$1,377
not reduced by the deduction
How your deduction was figured
- Qualified tips, capped at $25,000
- $18,000
- Modified AGI
- $40,000
- Phase-out reduction ($100 per full $1,000 over $150,000)
- $0
- Taxable income without / with the deduction
- $23,900 / $5,900
- Federal income tax without / with
- $2,620 / $590
Tax saved assumes the standard deduction. State income tax on tips depends on your state.
How the no tax on tips deduction works
The deduction equals your qualified tips, up to $25,000 per return (not per person, so a married couple shares one $25,000 cap). Schedule 1-A then subtracts $100 for every full $1,000 your modified AGI is above $150,000, or $300,000 on a joint return. Partial thousands are dropped, so being $10,500 over the line counts as 10, not 10.5. The result comes off taxable income after the standard or itemized deduction.
Worked example
A server files single for 2026 with $22,000 of hourly wages and $18,000 of reported tips. Income is $40,000, so there is no phase-out and the full $18,000 is deductible. Taxable income drops from $23,900 to $5,900 and federal income tax from $2,620 to $590, a $2,030 saving. Social Security and Medicare on the tips, $1,377, are still withheld.
Higher up the scale: a married couple with $320,000 of income and $30,000 of tips is capped at $25,000, then loses $100 x 20 = $2,000 to the phase-out, for a $23,000 deduction.
Rules that trip people up
- The occupation must be on the Treasury list at IRS.gov/TippedOccupations.
- Tips must be voluntary. Mandatory service charges are wages, not tips (IRS Notice 2025-69).
- Unreported cash tips do not qualify. Report them to your employer (or on Form 4137) first.
- Married filing separately cannot claim it, and a Social Security number valid for work is required.
- Available for 2025 through 2028 only.
Related tools and reading
Add the deduction to your full return with the tax refund calculator, or have less withheld now with the W-4 withholding calculator. If you also work overtime, the overtime calculator sizes that deduction. Self-employed tipped workers should check the self-employment tax calculator. For take-home pay see the paycheck calculator, for the whole year the US tax calculator, and for background the One Big Beautiful Bill explained.
Frequently asked questions
Are tips tax free now?
Partly. For tax years 2025 through 2028 you can deduct up to $25,000 of qualified tips a year on Schedule 1-A, which removes them from federal income tax. Social Security and Medicare taxes still apply, and so do most state income taxes. The deduction falls by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 for joint filers).
Which jobs qualify for no tax on tips?
Only tips earned in an occupation on the Treasury list of jobs that customarily received tips on or before December 31, 2024, published at IRS.gov/TippedOccupations. It covers eight groups, including food and beverage service, entertainment and events, hospitality, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery. Bartenders, servers, hairstylists, rideshare drivers and delivery workers are examples.
What counts as a qualified tip?
A tip the customer chooses to pay, in cash or by card, without negotiation and with no penalty for not paying. Tips shared through a tip pool count. Automatic service charges, such as an 18% charge added to large parties, are not tips and do not qualify. Employees must report their tips to their employer for them to appear on the W-2.
Can self-employed workers claim the tips deduction?
Yes, if the tips come from a listed occupation and the business is not a specified service trade or business such as health, law, accounting or performing arts. The deduction cannot be more than the net profit from the business that earned the tips. Self-employment tax still applies to that profit.
Does the tips deduction affect my W-2 or withholding?
Tips stay in your W-2 wages and are still subject to withholding. To have less income tax withheld during the year, enter your expected tips deduction on the Step 4(b) worksheet of the 2026 Form W-4. Otherwise the saving arrives as a bigger refund.
Can I take the tips and overtime deductions together?
Yes. They are separate deductions with separate caps: up to $25,000 for tips and up to $12,500 ($25,000 joint) for qualified overtime premium. Both are claimed on Schedule 1-A, both work with the standard deduction, and both use the same $150,000 / $300,000 phase-out.