Tips and overtime deduction calculator
See what the 2025–2028 deductions for tips and overtime are worth after the caps, the income phaseout and the premium-only overtime rule. It’s an estimate from your numbers, not advice; Krystal checks the real picture on a call.
Voluntary tips only; automatic service charges don’t count.
The phaseout starts at $150,000 ($300,000 married filing jointly).
Estimated deduction
Illustrative$16,000
About $1,920 less federal income tax at your 12% rate.
Deduction
$16,000
Tips deduction: $15,000
| Label | Value |
|---|---|
| Tips deduction | $15,000 |
| Overtime deduction | $1,000 |
How it breaks down
| Tips | Amount |
|---|---|
| Qualified tips | $15,000 |
| After the $25,000 cap | $15,000 |
| Tips deduction | $15,000 |
| Overtime | Amount |
|---|---|
| Total overtime pay | $3,000 |
| Deductible premium (the “half”) | $1,000 |
| Overtime deduction | $1,000 |
This is an income tax deduction, not a payroll tax exemption: you still pay about $1,148 of Social Security and Medicare tax on your tips. Estimates use 2026 brackets (Rev. Proc. 2025-32) and assume your occupation is on the Treasury list of tipped occupations. Results vary. This is not tax advice.
Method
How the estimate works.
The tips deduction
- Up to $25,000 of qualified tips per return, for tax years 2025 through 2028.
- Only voluntary tips in an occupation on the Treasury list count; mandatory service charges are wages.
- Claimed on Schedule 1-A, whether you itemize or take the standard deduction.
- If you’re self-employed, the deduction can’t exceed your net income from that business.
The overtime deduction
- Only the premium the federal FLSA requires counts: the extra half in time-and-a-half, not the full overtime rate.
- Up to $12,500 a year, or $25,000 married filing jointly.
The income phaseout
Each deduction is reduced by $100 for every $1,000 (or part of $1,000) of modified AGI over $150,000, or $300,000 married filing jointly. Married couples must file jointly to claim either deduction.
What it leaves out
- Social Security and Medicare, which still apply to tips and overtime.
- State income tax.
- Several jobs, or employer reporting that differs from your own records.
The tax figure applies a marginal rate estimated from your modified AGI and filing status, so it’s a rough guide.
FAQ
Tips and overtime questions.
Are tips completely tax-free now?
No. Tips are still reported as income and still subject to Social Security and Medicare (FICA) taxes. What is new is a federal income tax deduction of up to $25,000 per return for qualified tips (2025–2028), which you can claim on Schedule 1-A even if you take the standard deduction.
Which occupations qualify for the tips deduction?
Treasury final regulations (TD 10044) list 70+ occupations that customarily receive tips — servers, bartenders, hairstylists, nail techs, rideshare and delivery drivers, valets, casino dealers, musicians, and more. Your W-2 will show your Treasury Tipped Occupation Code (TTOC) in Box 14b starting with tax year 2026.
Do automatic gratuities and service charges count?
No. Only voluntary tips qualify. Mandatory service charges — like an automatic 18–20% added for large parties — are treated as regular wages, not qualified tips.
Why is only part of my overtime pay deductible?
The deduction covers only the overtime premium required by the federal FLSA — the extra "half" in time-and-a-half. If you earn $30/hour and $45/hour on overtime, only the $15/hour premium is deductible, up to $12,500 ($25,000 married filing jointly).
What if I am married filing separately?
Married taxpayers must file jointly to claim either deduction. Filing separately makes both deductions unavailable.
Do these deductions expire?
Yes — both apply to tax years 2025 through 2028 only, unless Congress extends them.
Keep reading
Related.
Paycheck calculator
Take-home pay after federal withholding, FICA and pre-tax deductions.
Tax bracket calculator
How each dollar of income falls across the federal brackets.
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