Estimator only, built from IRC §224 and the IRS sources cited below. Not tax advice. Runs entirely in your browser — nothing you type is sent anywhere.
How this is calculated
The deduction (Internal Revenue Code §224, added by the One Big Beautiful Bill Act) is:
| Step | Rule |
|---|---|
| 1. Start | Your qualified tips for the year |
| 2. Cap | At most $25,000 per return — joint filers share one cap |
| 3. Phase-out | Minus $100 per $1,000 (or part of $1,000) of MAGI above $150,000 ($300,000 joint). Gone entirely at $400,000 / $550,000 |
| 4. Tax saved | Your federal income tax with the deduction subtracted from income, vs without it — computed on the real bracket tables under this page |
Qualified tips are voluntary cash or charged tips, reported on a W-2, a 1099, or Form 4137, earned in an occupation that customarily and regularly received tips on or before December 31, 2024 (the Treasury/IRS occupation list — 70+ occupations with Treasury Tipped Occupation Codes). Mandatory service charges and automatic gratuities are not qualified tips. You need a Social Security number, and if you're married you must file jointly — married filing separately cannot claim this deduction at all. The deduction is “above the line”: you get it whether or not you itemize, on the new Schedule 1-A. Tips still owe Social Security and Medicare tax — this deduction is federal income tax only. Self-employed tipped workers can claim it, but not for more than the net income of the business that earned the tips, and tips earned in a specified service trade or business are excluded.
Worked example (check it by hand)
Single filer, 2026, total income $60,000 including $18,000 of qualified tips. Under the cap, and $60,000 is below the $150,000 phase-out threshold, so the deduction is the full $18,000. Without it: taxable income is $60,000 − $16,100 standard deduction = $43,900, taxed at 10% on $12,400 ($1,240) plus 12% on $31,500 ($3,780) = $5,020. With it: income $42,000, taxable $25,900, tax $1,240 + 12% × $13,500 ($1,620) = $2,860. Tax saved: $2,160 — exactly $18,000 × the 12% marginal rate. The calculator above reproduces this example with its default inputs.
Work overtime too? The same law created a separate deduction for the overtime premium — up to $12,500 ($25,000 joint). The two stack. Run it next: no tax on overtime calculator →
Frequently asked questions
Is the $25,000 cap per person?
No — per return. Two tipped spouses filing jointly share one $25,000 cap. That is the single most-misstated fact about this deduction.
Do I have to itemize?
No. It is an above-the-line deduction claimed on Schedule 1-A, available with the standard deduction.
Are credit-card tips qualified? Cash tips I didn't report?
Charged tips count — “cash tips” in the statute includes checks and card payments. Unreported tips do not: they must be reported (W-2, 1099, or Form 4137) to qualify.
What if my income is near the phase-out?
The reduction is $100 per $1,000 or part of $1,000 over the threshold, so $1 over $150,000 already costs $100 of deduction. This calculator applies that rounding exactly as written.
Sources
- Internal Revenue Code §224 (deduction for qualified tips), added by the One Big Beautiful Bill Act, P.L. 119-21 — cap, phase-out, SSN and joint-filing requirements, 2025–2028.
- IRS Schedule 1-A and instructions (2025) — how the deduction is claimed; available to itemizers and non-itemizers.
- IRS Notice 2025-69 — substantiation and transition rules for 2025.
- IRS Revenue Procedure 2025-32 — 2026 brackets and standard deductions ($16,100 single / $32,200 joint / $24,150 head of household); Revenue Procedure 2024-40 as increased by the Act for 2025 ($15,750 / $31,500 / $23,625).
Last updated October 20, 2026. Estimator only — not tax advice. Your facts (credits, other deductions, state tax) change the answer; a tax professional sees the whole return.
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