No Tax on Tips & Overtime Calculator (2026 OBBBA Deduction)

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, created two new above-the-line federal deductions effective for tax years 2025–2028: "No Tax on Tips" (up to $25,000 of qualified tip income) and "No Tax on Overtime" (up to $12,500 for single filers / $25,000 for joint filers of the overtime premium portion of pay). Both stack with the standard deduction — you do not need to itemize to claim them.

You qualify if you work in an occupation the IRS lists as "customarily and regularly" receiving tips. This covers servers, bartenders, baristas, hairstylists, barbers, nail technicians, personal trainers, hotel housekeepers, rideshare and delivery drivers, casino dealers, massage therapists, and similar tipped roles. Both W-2 employees and self-employed gig workers can claim it. Your employer or platform must report your tips correctly.

Qualified tips are voluntary cash or charged tips received from customers, plus your share of pooled tips you actually receive. Mandatory service charges (auto-gratuities) are wages, not tips, and do not qualify. Allocated tips reported in W-2 box 8 are included if you reported the income. The $25,000 cap is per taxpayer and is reduced by the MAGI phase-out.

Yes — but only your actual share. If a restaurant pools $1,000 in tips across four servers, each server can claim their $250 share, not the full pool. The deduction follows whoever actually received the tip money, which is exactly how it appears on each worker's W-2 box 7.

Most states "roll over" the federal AGI, so the deduction flows through automatically and reduces your state tax too. A handful of states have decoupled or use their own income definition: California, New York, New Jersey, and Pennsylvania do not honor the federal deduction (you will see an addback line on your state return). Nine states have no income tax at all (TX, FL, TN, NV, WA, WY, SD, AK, NH on wages) — so the federal deduction is your entire state-level benefit.

The deduction phases out by $100 for every $1,000 of MAGI above $150,000 (single) / $300,000 (MFJ) — a 10% reduction rate. So a single filer with $200,000 MAGI ($50,000 over) loses $5,000 of deduction. At high enough income, the deduction phases out entirely: a single filer is fully phased out around $525,000 MAGI if claiming both maxed deductions, lower if claiming only tips.

Yes. They are separate deductions with separate caps — you can claim up to $25,000 of tip deduction AND up to $12,500/$25,000 of overtime deduction in the same year. The MAGI phase-out applies to the combined total, not each separately, so a high earner phases out of both at the same rate.

Both deductions are scheduled to expire after tax year 2028 unless Congress extends them. They apply to tax years 2025, 2026, 2027, and 2028. Claim them on Schedule 1-A of Form 1040 — the IRS has published a dedicated schedule for the new "no tax on tips, overtime, car loans, and seniors" deductions.