Tips & Overtime Deduction Calculator
Your tips, your overtime, and the 2026 limits
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- United States unless the calculator explicitly says otherwise
- Rules and time period
- Tax years supported by the selected calculator
- Scope and limitations
- Educational estimate only, not a tax return or filing determination. U.S. statutory-threshold tools use USD. Confirm current law and your facts with the relevant authority or a qualified tax professional.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the qualified tips your employer reports for the year.
- 02
For overtime, enter the hours, your regular hourly rate, and the multiplier your overtime is paid at — 1.5 for time and a half.
- 03
Enter your modified AGI. Both deductions shrink above the threshold, so this is what decides how much survives.
- 04
Add your marginal tax rate, which is what turns a deduction into money.
- 05
Read the federal tax saved, then the two deductions behind it and the headroom before the phase-out starts.
Formula
Overtime premium = hours × regular rate × (multiplier − 1). Reduction = $100 for each $1,000, or part of one, of MAGI above the threshold. Tips deduction = qualified tips capped at $25,000, less the reduction. Overtime deduction = the premium capped at $12,500 ($25,000 joint), less the reduction. Tax saved = the two added, times your marginal rate.
Example
$18,000 of tips plus 320 overtime hours at a $26 regular rate: the premium is 320 × $26 × 0.5 = $4,160, not the $12,480 the whole overtime check comes to. At $92,000 of MAGI nothing is phased out, so the combined deduction is $22,160 and, in the 22% bracket, it saves $4,875 of federal income tax. The same worker at $158,000 of MAGI loses $800 from each deduction — eight steps of $100.
Definitions
- Qualified overtime
- The premium above your regular rate on overtime the Fair Labor Standards Act requires — the "half" of time and a half, not the whole payment.
- Schedule 1-A
- The form these deductions are claimed on, alongside the car loan interest and senior deductions. Available to itemizers and non-itemizers alike.
- Modified AGI
- What the phase-out is measured against. Because the deduction does not reduce AGI, claiming it does not move your own phase-out.
Good to know
A deduction, not an exemption
"No tax on tips" and "no tax on overtime" were campaign phrases before they were tax law, and the law that arrived is narrower than either. What the 2025 act created is a pair of deductions: up to $25,000 of qualified tips, and up to $12,500 of qualified overtime — $25,000 on a joint return. A deduction reduces the income you are taxed on, so it is worth your marginal rate on that amount. For a worker in the 22% bracket, $22,160 of deduction is $4,875 of tax, not $22,160. That is a real and substantial break for a tipped or hourly worker, and it is roughly a fifth of what the phrase promises. Both run for tax years 2025 through 2028 only, unless Congress extends them.
Only the premium half of overtime
This is the detail most competing calculators get wrong, and it changes the answer by a factor of three. What qualifies is not the overtime pay — it is the premium: the amount above your regular rate that federal law requires. On time and a half, that is the extra 0.5, not the full 1.5. Three hundred and twenty hours at a $26 regular rate produces $12,480 of overtime pay but only $4,160 of qualified premium. The source of the overtime matters as much as the arithmetic: only overtime the Fair Labor Standards Act requires counts, which means the premium on hours past 40 in a workweek. State daily-overtime rules, union or employer policies more generous than federal law, and premium pay to an employee who is exempt from the FLSA all produce extra money on the pay stub that does not qualify.
What it does not touch
Both deductions cut taxable income but not adjusted gross income, and that distinction carries more consequences than it sounds like. Payroll tax is untouched: a tipped worker still pays 7.65% of every tip toward Social Security and Medicare, and those tips still build the earnings record the eventual benefit is calculated from. Nothing keyed to AGI moves either — a Medicare IRMAA surcharge, a Marketplace premium tax credit, an income-driven student loan payment, and the phase-out on these very deductions are all measured on an AGI the deduction does not reduce. Nor does either affect state income tax in most states, which start from federal AGI rather than federal taxable income. Both are claimed on Schedule 1-A, available whether or not you itemize — but if you are married, both require a joint return.
The staircase, and what the payroll office cannot know
Above $150,000 of modified AGI — $300,000 filing jointly — each deduction falls by $100 for every $1,000, or any part of $1,000, above the threshold. The "or part thereof" makes it a staircase rather than a ramp: one dollar over a step costs the whole $100, so income near a step boundary is worth managing. Two further points about the workplace side. An automatic service charge added to a bill — the 18% on a large table, a mandatory resort fee — is wages rather than a tip and does not qualify, however it reaches you. And withholding on a heavy overtime week looks alarming because payroll annualizes that one week as though every week looked like it; your bracket never changed, and the excess comes back at filing. Eligibility for the tips deduction also depends on working in an occupation that customarily received tips, which is a published list rather than a number — no calculator can check it for you.
Frequently asked questions
Is tip income really untaxed now?
No. "No tax on tips" is a headline, not the rule. It is a deduction of up to $25,000 of qualified tips, so it is worth your marginal rate on that amount — 22 cents on the dollar in the 22% bracket, not the whole dollar. Tips remain wages, they still appear on your return, and they are still subject to payroll tax.
Does all my overtime pay qualify?
Only the premium half. On time and a half, the qualifying part is the extra 0.5 above your regular rate, not the whole 1.5. Deducting the entire overtime check is the error most calculators make and it roughly triples the answer. The overtime must also be the kind federal law requires — the premium on hours past 40 in a week.
Do I have to itemize to claim these?
No. Both sit on Schedule 1-A and are available whether you itemize or take the standard deduction. If you are married, though, both require a joint return: filing separately, neither is available at all.
Does it cut my Social Security and Medicare tax too?
No, and this is the part that surprises people. Both reduce taxable income but not AGI, so payroll tax is untouched — a tipped worker still pays FICA on every tip. Because AGI does not move, neither does anything keyed to it: Medicare IRMAA surcharges, a Marketplace premium tax credit and an income-driven student loan payment are all unchanged.
What happens as my income rises?
Above $150,000 of modified AGI — $300,000 on a joint return — each deduction is reduced by $100 for every $1,000, or part of $1,000, above the threshold. It is a staircase rather than a smooth taper, so a single dollar over a step costs the full $100.
How long does this last?
Tax years 2025 through 2028, unless Congress extends it. It is a four-year window written into the 2025 law, not a permanent feature of the code.