No Tax on Tips & Overtime Calculator
The 2025 One Big Beautiful Bill Act created two new deductions — for tip income and for overtime pay. This tool shows exactly how much you can deduct, honestly: only the overtime premium counts, the amounts are capped, they phase out at higher incomes, and payroll tax is untouched.
Your tips & overtime deduction
Example: $28,000 in tips plus 8 overtime hours a week at $20.00/hour, single, 2026 → tips capped at $25,000, only the $4,160 overtime premium counts, for a $29,160 deduction.
Only the overtime premium counts — the single biggest mistake
The headline "no tax on overtime" makes it sound like your entire overtime check is now tax-free. It is not. The law (IRC § 225) only lets you deduct the overtime premium — the amount paid above your regular rate. On $20.00 an hour at time-and-a-half, overtime pays $30.00, but only the $10.00 premium per hour is deductible. Over eight overtime hours a week that is $4,160 for the year — the figure the calculator counts, computed by the same tested engine shown above. The base rate portion of overtime is taxed like any other wage.
The caps and the phase-out
Tips are deductible up to $25,000 per return — the same ceiling whether you file single or married filing jointly, so it is not doubled for couples. The overtime deduction is capped at $12,500 for single and head-of-household filers and $25,000 for married filing jointly. In the example, $28,000 of tips is trimmed to the $25,000 cap. Above $150,000 of modified AGI ($300,000 joint), each deduction shrinks by $100 for every full $1,000 of income over the line — so the tips deduction disappears entirely at $400,000 (single) and the overtime deduction at $275,000 (single). Enter a total income above the threshold and the calculator applies the reduction.
What still gets taxed
These are income-tax deductions only. Social Security (6.2%) and Medicare (1.45%) still apply to the full amount of your tips and overtime — the deduction does not touch your payroll tax, and your tips remain fully reportable wages. State income tax may also still apply, depending on whether your state conforms to the federal change. To see what the deduction is worth to you in real dollars, enter your total income above: the estimate multiplies the deduction by the tax bracket it falls in.
Frequently asked questions
Are my tips and overtime now completely tax-free?
No — and the name oversells it. This is a temporary federal INCOME-tax deduction, not a full exemption. Social Security and Medicare (FICA) are still withheld on every dollar of your tips and overtime, and any amount above the caps or lost to the phase-out stays taxable. It reduces the income-tax slice only, for tax years 2025 through 2028.
How much of my overtime actually counts?
Only the FLSA overtime PREMIUM — the extra "half" you are paid above your regular rate — not the whole overtime paycheck. If your regular rate is $20 and overtime pays $30 (time-and-a-half), only the $10-per-hour premium is deductible, never the full $30. Overtime required only by a state law, union contract, or company policy (but not the federal FLSA) does not qualify.
What are the limits?
Tips are deductible up to $25,000 per return — the same figure for single and married-filing-jointly, so a two-earner couple shares one ceiling. The overtime deduction is capped at $12,500 for single and head-of-household filers and $25,000 for married filing jointly. Both then phase out by $100 for each full $1,000 of modified AGI over $150,000 (single) or $300,000 (joint).
Do I have to itemize to claim it?
No. Both are above-the-line deductions taken from gross income, so you can claim them and still take the standard deduction — they stack. The overtime deduction is reported on the new Schedule 1-A.
Which jobs qualify for the tips deduction?
Occupations that "customarily and regularly" received tips on or before December 31, 2024 — the IRS publishes a specific list (wait staff, bartenders, hairstylists, barbers, nail techs, taxi and rideshare drivers, delivery workers, and more). Only voluntary tips count; a mandatory service charge or auto-gratuity is not a tip. Tips must be reported (on a W-2, a 1099, or Form 4137).
What if I am married filing separately?
Married taxpayers must file jointly to claim either deduction — married filing separately gets $0. A Social Security number valid for employment is also required. This calculator models single, married filing jointly, and head of household.
Sources
This is a brand-new provision; every figure here traces to a primary source:
- No Tax on Tips — 26 U.S.C. § 224 (qualified tips): $25,000 cap; $100-per-$1,000 phase-out over $150,000 / $300,000; tax years 2025–2028.
- No Tax on Overtime — 26 U.S.C. § 225 (qualified overtime): $12,500 / $25,000 caps; premium-only ("in excess of the regular rate").
- IRS guidance — OBBBA tax deductions for working Americans and seniors and the Q&A on the qualified-overtime deduction.
Not tax advice: a planning estimate of two new, still-settling federal deductions. It excludes FICA (which still applies), state taxes, the specific tipped-occupation eligibility list, the self-employed net-income limit, the SSTB rules, and any coordination with other parts of your return; the tax-saving figure assumes the standard deduction and no other adjustments. Married filing separately cannot claim these. Confirm your situation against IRS.gov or a tax professional. Values are processed locally in your browser and never transmitted. See the methodology page.