Estimate the new federal deduction for qualified tips: up to $25,000 a year from 2025 through 2028, reduced once modified AGI passes $150,000 ($300,000 for joint filers). See the deduction, the income tax it saves and what you still owe in payroll tax.
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Filing details
Tips & income
$
Cash, card and shared tips reported on your W-2, Form 4137 or 1099. Voluntary tips only, not automatic service charges.
$
Your AGI including the tips, plus any excluded foreign income.
$
After the standard or itemized deduction, before this deduction.
Enter your values to see the result.
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How to use the No Tax on Tips Calculator
Pick the tax year and filing status. Joint filers share one $25,000 cap; married filing separately cannot claim it.
Enter your qualified tips for the year, as reported on your W-2 (box 7 and allocated tips), Form 4137 or 1099.
Enter your modified AGI. For most people this is the AGI on Form 1040, including the tips.
Keep the estimate box ticked or untick it and type your own taxable income if you itemize or have other deductions.
Press Calculate deduction to see the deduction, the federal tax saved and the phase-out table.
How the tips deduction is calculated
Tentative deduction = the smaller of your qualified tips or $25,000.
Phase-out = 10% × (modified AGI − $150,000), or − $300,000 on a joint return. Zero if MAGI is below the threshold.
Deduction = tentative deduction − phase-out, but never below $0.
Tax saved = tax on your taxable income without the deduction − tax with it.
Example (2026, single): a bartender with $32,000 of tips and $70,000 of MAGI is capped at $25,000. MAGI is under $150,000, so there is no phase-out. Taxable income falls from $53,900 ($70,000 − $16,100 standard deduction) to $28,900. Tax drops from $6,570 to $3,220, a saving of about $3,350.
Tips deduction limits at a glance
Rule
Single / head of household
Married filing jointly
Maximum deduction
$25,000
$25,000 (combined)
Phase-out starts (MAGI)
$150,000
$300,000
Reduction
$100 per $1,000 of MAGI over the threshold (10%)
Full $25,000 gone at
$400,000
$550,000
Married filing separately
Not allowed
Years
2025 through 2028
Tips that help you claim it
Report every tip to your employer. Only tips that show up on a W-2, 1099, Form 4137 or similar statement count, so unreported cash tips cannot be deducted.
Know what is not a tip. Automatic gratuities, mandatory service charges and wages paid by the business are not qualified tips, even if the customer sees them as a tip.
Shared tips count. Money you receive through a tip pool or tip-out arrangement is still qualified if it came from customers voluntarily.
Check your withholding. Your employer may still withhold income tax on tips during the year. Lower it with a new W-4 if you expect a large deduction, or expect a bigger refund.
Look at your state. Many states start from federal AGI, and because this deduction comes after AGI, your state may still tax all your tips.
Frequently asked questions
How does the no tax on tips deduction work?
From tax year 2025 through 2028, workers in occupations that customarily received tips can deduct up to $25,000 of qualified tips from federal taxable income. It is claimed on Schedule 1-A, is available whether you itemize or take the standard deduction, and does not lower your AGI.
Who qualifies for the tips deduction?
You need a valid Social Security number, the tips must be voluntary payments (not mandatory service charges) received in an occupation on the Treasury list of tipped jobs, and they must be reported on a W-2, 1099, Form 4137 or similar statement. Married couples must file jointly. Self-employed workers in a specified service trade or business are excluded.
How does the income phase-out work?
The deduction is reduced by $100 for every $1,000 of modified AGI above $150,000, or $300,000 on a joint return. That is 10% of the excess, so a single filer with the full $25,000 deduction loses it completely at $400,000 of MAGI, and someone with $5,000 of tips loses it at $200,000.
Are tips still taxed for Social Security and Medicare?
Yes. The deduction only affects federal income tax. Employees still pay 7.65% FICA on tips (6.2% Social Security plus 1.45% Medicare) and self-employed people pay self-employment tax. State income tax depends on whether your state follows the federal rule.
Is the cap $25,000 per person or per return?
Per return. A married couple filing jointly where both spouses earn tips can deduct at most $25,000 combined, not $50,000.
How much will the deduction save me?
Roughly the deduction times your marginal tax rate. A server in the 12% bracket who deducts $18,000 saves about $2,160; in the 22% bracket the same deduction is worth about $3,960. This calculator runs your taxable income through the actual brackets, so it also handles deductions that cross a bracket boundary.
What years does it apply to?
Tax years 2025, 2026, 2027 and 2028. Unless Congress extends it, the deduction ends after 2028. The $25,000 cap and the phase-out thresholds are not adjusted for inflation.
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