Estimate your federal tax savings from the OBBBA tip deduction. Deduct up to $25,000 of qualified tips per return from your federal taxable income — if your occupation is on the Treasury list and your tips are voluntary.
Work overtime too? Pair this with the no-tax-on-overtime calculator — the deductions stack on the same Schedule 1-A.
The $25,000 cap is per return — it does not double for joint filers. Married filing separately can't claim this deduction; a married taxpayer must file jointly.
Voluntary cash, card, and shared/pooled tips reported to your employer.
Used to check the phase-out and estimate your bracket.
401(k), HSA, student loan interest, etc. These also lower the MAGI used for the phase-out.
Treasury's final regulations (26 CFR 1.224-1(h)) list 71 occupations in eight categories: Beverage and Food Service (bartenders, wait staff, baristas, cooks); Entertainment and Events (gambling dealers, DJs, musicians, digital content creators); Hospitality and Guest Services; Home Services; Personal Services; Personal Appearance and Wellness (barbers and hairstylists, massage therapists, manicurists); Recreation and Instruction (golf caddies, tour and travel guides); and Transportation and Delivery (taxi and rideshare drivers, valets, goods delivery people). Only tips received in a listed occupation are eligible — if a role isn't on the list, it doesn't qualify.
One more screen: tips earned in a “specified service trade or business” — fields such as health, law, consulting, athletics, performing arts and financial services — are excluded by the statute. The IRS has said it will treat anyone in a listed occupation as outside that exclusion until it issues final rules on it (Notice 2025-69; paragraph (g) of the regulation is reserved).
| Filing Status | Max Deduction | Phase-out Starts | Gone Entirely At (Full $25,000) |
|---|---|---|---|
| Single / HoH | $25,000 | $150,000 | $400,000 |
| Married Filing Jointly | $25,000 | $300,000 | $550,000 |
For tax year 2026, employers must report qualified tips in W-2 Box 12 under code TP and the employee's Treasury tipped-occupation code in new Box 14b — both appear on W-2s issued in early 2027. Your paycheck doesn't change during the year: tips remain subject to federal withholding, Social Security, and Medicare, and you claim the deduction on Schedule 1-A when you file. For 2025 returns, employers weren't required to break tips out, so Notice 2025-69 let you use the Social Security tips in W-2 Box 7, the tips you reported to your employer on Form 4070, or the amount on Form 4137.
Retroactively on January 1, 2025 — signed July 4, 2025 as part of the OBBBA, effective for tax years 2025 through 2028. Workers claimed it for the first time on 2025 returns filed in early 2026. Unless Congress extends it, it ends after tax year 2028.
No — keep reporting every tip. Tips remain subject to Social Security and Medicare (FICA), state income tax in most states, and normal federal withholding during the year. The benefit is a federal income tax deduction at filing time of up to $25,000 of qualified tips. Under-reporting tips would shrink both your Social Security earnings record and the deduction you're entitled to claim.
Your deductible tips times your marginal rate. A single server with $18,000 in reported tips and $55,000 total income deducts the full $18,000 and, at the 2026 rates (12% bracket), saves about $2,160 in federal tax. The same $18,000 would save about $3,960 in the 22% bracket. At the $25,000 cap, the deduction is worth about $5,500 in the 22% bracket and more in higher ones. Run your own numbers in the calculator above.
Generally no. The final rules require tips to be voluntary — the customer must be able to reduce the amount to zero. A mandatory 18% large-party gratuity is a service charge, not a qualified tip. Card tips are fine, and point-of-sale prompts count as long as a no-tip option exists. Tips paid in cryptocurrency are explicitly excluded.
Yes — they're separate deductions on the same Schedule 1-A and they stack. A bartender who works overtime can deduct qualified tips (up to $25,000) and the FLSA overtime premium (up to $12,500/$25,000) in the same year, subject to each deduction's own phase-out. Estimate the overtime side with the no-tax-on-overtime calculator and the raw pay with the overtime calculator.