No Tax on Tips & Overtime Calculator

These two deductions are part of a larger set of changes the One Big Beautiful Bill Act makes to the 2026 return. For how they sit alongside the senior deduction, the SALT cap, car-loan interest, and the rest — and the Schedule 1-A form they are all claimed on — see the guide What OBBBA Changes on Your 2026 Return; the full set of explainers is on the guides page. This page documents what the two tips-and-overtime calculations do, where they stop, and how to read the figure they produce.

Only the overtime premium counts — the mistake to avoid

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, never the full $30.00. 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 tool isolates that premium before it does anything else. The engine's qualifiedOvertimePremium(regularRate, overtimeHoursPerWeek, overtimeMultiplier) computes the rate above the regular rate — your rate times the multiplier minus one — for each overtime hour, and annualizes it over 52 weeks. At the time-and-a-half default the premium is exactly the "half"; at a double-time (2×) rate it would be the whole regular rate again, but never more than the overtime paycheck. Overtime that an employer pays only because a state law, a union contract, or a company policy requires it — not the federal Fair Labor Standards Act — is not a qualified premium, and the tool cannot tell the difference, so it assumes the hours you enter are FLSA overtime.

How the calculator builds the number

Once the premium is isolated, the deductible figure is assembled in a fixed order by noTaxTipsOvertime({ tipIncome, overtimePremium, status, year, magi }). First the engine applies the caps: tips are trimmed to the per-return ceiling and the overtime premium to its own ceiling, each depending on filing status. Then, only if you supply a total income, it applies the phase-out — the same dollar reduction to each capped amount. The two results are the tips deduction and the overtime deduction; their sum is the total. The order matters: the cap is taken first, so entering more tips than the ceiling never increases the deduction, and the phase-out then works down from the capped figure, not from what you earned. Every worked figure on this page is produced by that function at build time, on fictional inputs, for 2026; the copy cannot drift from the calculator because it is the same code.

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 thousand dollars 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.

The phase-out counts full thousands only: there is no "or fraction thereof" in the enacted statute, so a modified AGI just under a full thousand over the threshold removes nothing, and the reduction steps up by $100 at each whole thousand. Married couples get their own threshold ($300,000), not a doubled single figure applied twice. For a joint return the larger structural difference is on the overtime side: the $25,000 joint overtime ceiling is twice the $12,500 single one, while the tips ceiling stays at $25,000 for both. Example, married filing jointly, 2026, income under the threshold: $31,000 of tips and $30.00 an hour for 12 overtime hours a week at 1.5× — a premium of $9,360. The tips are trimmed to the $25,000 shared cap, but the whole $9,360 premium counts because it is under the joint overtime ceiling, for a $34,360 combined deduction.

A worked example inside the phase-out

The phase-out and the estimated saving are easiest to see on a single example. Single, 2026: $9,000 of tips, and $26.00 an hour for 10 overtime hours a week at 1.5× — a premium of $6,760, both amounts under their caps. A modified AGI of $171,500 is $21,500 over the $150,000 single threshold — 21 full thousands — so $2,100 comes off each deduction. That leaves a tips deduction of $6,900 and an overtime deduction of $4,660, $11,560 in total. With that MAGI supplied, the tool also estimates the income-tax saving: $2,774.40, the bracket differential at the 24% marginal rate on a standard-deduction taxable-income proxy. That saving is the deduction's value at your bracket — not a refund and not money handed back — and Social Security and Medicare are unchanged by it. The tool echoes the MAGI you entered without recomputing it from the deduction; these are claimed on Schedule 1-A, available whether or not you itemize, and subtracted after AGI, so they never reduce your AGI or MAGI.

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; this site models US federal tax only and takes no position on any state's rule. 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. A deduction is not a credit — it lowers the income the brackets act on, so its value is your marginal rate times the amount, never the amount itself.

How to read the result

The common misreadings all come from asking the figure a question it was not built to answer. The deduction is not the amount of your overtime check; it is the FLSA premium within it, which is why a large overtime paycheck can produce a modest deduction. The cap is taken before the phase-out, so two filers with the same tips but different incomes can report the same capped amount and still deduct different totals once the phase-out bites. The estimated saving is a deduction's bracket value, not a refund: it is what the deduction removes from your income-tax liability, computed on a standard-deduction proxy, and your filed amount can differ once your real return is in view. And the phase-out runs on the MAGI you type — the tool has no way to know your actual modified AGI and never derives it from the deduction, so the reduction is only as good as that input. Leave the MAGI blank and you get the deductible amount with no phase-out and no saving, which is the right reading when your income is below the threshold or not yet known.

Where the tool stops

The calculator models the arithmetic of the two deductions — the caps, the premium, and the phase-out — and deliberately not the eligibility rules around them. It does not check which occupations "customarily and regularly" received tips, does not apply the specified-service-trade-or-business limits, and does not compute the separate net-income limit that applies to a self-employed person's qualified tips; enter only amounts you have confirmed are qualified. It assumes the overtime hours you enter are FLSA overtime, assumes a valid Social Security number, and does not model married filing separately, which the statute excludes. Tax years outside 2025–2028 return a $0 deduction because the provision does not reach them. This is a brand-new provision still settling into guidance, so confirm consequential figures against IRS.gov or a tax professional. The disclaimer and methodology pages set out these boundaries in full, and the OBBBA guide places these two deductions in the context of the whole 2026 change.

Frequently asked questions

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-thousand 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.