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The rules at a glance
| Tips | Overtime | |
|---|---|---|
| Maximum deduction | $25,000 per return | $12,500 ($25,000 joint) |
| What counts | Voluntary cash or card tips in a customarily tipped occupation | The premium part of FLSA overtime |
| Phase-out starts | $150,000 MAGI ($300,000 joint), −$100 per $1,000 over | |
| Years | Tax years 2025–2028 | |
Sources: IRS Schedule 1-A (tips, overtime, car loan interest, seniors) · IRS — OBBBA deductions for working Americans and seniors.
Assumptions
- 2026 federal rules: IRS brackets, standard deduction and capital gains thresholds (Rev. Proc. 2025-32), plus Schedule 1-A deductions (2025–2028).
- MAGI is treated as equal to AGI (true unless you exclude foreign or Puerto Rico income). Net investment income tax treats 'other income' as investment income.
- Doesn't include state tax, AMT, the earned income credit, education credits or the 20% qualified business income deduction (so self-employed results may run high).
- Estimates only — your actual tax depends on your full return.
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. Tips are still subject to Social Security and Medicare tax, and most states still tax them.
Which overtime counts?+
Only the premium part of overtime required by the Fair Labor Standards Act — the extra half in time-and-a-half. If you earn $20/hour and $30/hour for overtime, $10 of each overtime hour qualifies. The calculator works this out from your total overtime pay.
Who can't claim these deductions?+
Married couples filing separately, anyone without a valid Social Security number, and (for tips) people outside the IRS list of customarily tipped occupations or in specified service businesses. Income above the phase-out ranges reduces the deduction.
How does the phase-out work?+
Both deductions shrink by $100 for every full $1,000 of modified AGI above $150,000 ($300,000 if married filing jointly).
Do I need to itemize?+
No. Both deductions are taken on Schedule 1-A and work alongside the standard deduction.
Related calculators
Uses 2026 rules and limits. Last reviewed October 15, 2026. Calculator version 1.0.0. Sources: IRS Rev. Proc. 2025-32 (tax year 2026 inflation adjustments) · IRS Schedule 1-A (tips, overtime, car loan interest, seniors) · IRS — OBBBA deductions for working Americans and seniors · Journal of Accountancy — Social Security wage base and COLA for 2026 · IRS Instructions for Schedule A (SALT limitation worksheet). Results are estimates for educational purposes, not financial, tax or lending advice. How we check our numbers.