What is my overtime and tip tax cut?
Estimate the new federal deductions for tips and overtime pay, and the income tax they save you, for tax years 2025 to 2028.
- Tax you save
- $1,833.33
With $5,000.00 in tips and $10,000.00 of overtime pay, you deduct $8,333.33 and save $1,833.33.
- Total deduction
- $8,333.33
- Tips deduction
- $5,000.00
- Overtime deduction
- $3,333.33
- Qualified overtime
- $3,333.33
- Federal tax saved
- $1,833.33
- Modified AGI
- $65,000.00
- Phase-out cut per deduction
- $0.00
Tax you save: $1,833.33. With $5,000.00 in tips and $10,000.00 of overtime pay, you deduct $8,333.33 and save $1,833.33.
Where does the deduction come from?
Total deduction by other income
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the federal no-tax-on-tips and no-tax-on-overtime deductions for tax years 2025 to 2028, with the income phase-out, and the tax they save at your tax rate.
Example with the default inputs (Tax year 2026, Filing status Single or head of household, Other income $50,000.00, Overtime pay $10,000.00, The overtime amount is All my overtime pay, Tips $5,000.00, Federal tax rate 22%, My state also allows these deductions No): With $5,000.00 in tips and $10,000.00 of overtime pay, you deduct $8,333.33 and save $1,833.33.
Method: Each deduction = its capped amount − $100 × ⌊(MAGI − threshold) ÷ $1,000⌋, not below 0. Tips are capped at $25,000; qualified overtime (the extra half of time-and-a-half pay) at $12,500 ($25,000 jointly); the threshold is $150,000 ($300,000 jointly). Tax saved = total deduction × tax rate.
- Tax years 2025 to 2028 only; the limits are from IRS Schedule 1-A (Form 1040) 2025, the 2026 draft, and the IRS statement that they are the same through 2028.
- MAGI is taken as other income + all overtime pay + tips: no other adjustments and no excluded foreign or Puerto Rico income. With “Only the extra half”, all overtime pay is taken as three times the amount typed (time and a half).
- “All my overtime pay” means pay at time and a half, so one third of it is the extra half that qualifies. Pay above time and a half does not add to the qualifying part.
- All tips entered are qualified tips from an occupation on the IRS list; they must be reported, and you need a valid Social Security number.
- Married people must file jointly to claim; married filing separately gets no deduction.
- The saving is the deduction times your top tax rate, so it is an estimate: a deduction that crosses a bracket saves a little less. Social Security and Medicare taxes are not reduced.
Worked examples
Each example is checked against the calculator on every build.
- Tax year 2025, Filing status Single or head of household, Other income $50,000.00, Overtime pay $10,000.00, The overtime amount is All my overtime pay, Tips $5,000.00, Federal tax rate 22%, My state also allows these deductions no gives Qualified overtime $3,333.33, Tips deduction $5,000.00, Overtime deduction $3,333.33, Total deduction $8,333.33, Federal tax saved $1,833.33, Tax you save $1,833.33, Modified AGI $65,000.00, Phase-out cut per deduction $0.00.Source: IRS Schedule 1-A (Form 1040) 2025 Parts II and III
- Tax year 2025, Filing status Single or head of household, Other income $200,000.00, Overtime pay $12,500.00, The overtime amount is All my overtime pay, Tips $25,000.00, Federal tax rate 22%, My state also allows these deductions no gives Modified AGI $237,500.00, Phase-out cut per deduction $8,700.00, Tips deduction $16,300.00, Overtime deduction $0.00, Total deduction $16,300.00, Tax you save $3,586.00.Source: IRS Schedule 1-A (Form 1040) 2025 lines 7 to 13 and 15 to 21
- Tax year 2026, Filing status Married filing jointly, Other income $300,000.00, Overtime pay $9,000.00, The overtime amount is Only the extra half, Tips $20,000.00, Federal tax rate 24%, My state also allows these deductions yes, State tax rate 5% gives Modified AGI $347,000.00, Phase-out cut per deduction $4,700.00, Tips deduction $15,300.00, Overtime deduction $4,300.00, Total deduction $19,600.00, Federal tax saved $4,704.00, State tax saved $980.00, Tax you save $5,684.00.Source: IRS Schedule 1-A (Form 1040) 2025 (same limits for 2026)
- Tax year 2025, Filing status Single or head of household, Other income $150,500.00, Overtime pay $0.00, The overtime amount is All my overtime pay, Tips $10,000.00, Federal tax rate 24%, My state also allows these deductions no gives Modified AGI $160,500.00, Phase-out cut per deduction $1,000.00, Tips deduction $9,000.00, Tax you save $2,160.00.Source: IRS Schedule 1-A (Form 1040) 2025 line 11: a part of $1,000 is dropped
Tax law used
This page uses the federal rules for tax years 2025 to 2028, checked on September 27, 2026 against:
- IRS Schedule 1-A (Form 1040) for tax year 2025 (created November 4, 2025), the final form;
- the early-release draft of Schedule 1-A (Form 1040) for tax year 2026 (created June 16, 2026), which has the same amounts;
- the IRS page "Working Families Tax Cuts" (updated July 25, 2025), which says the same limits apply through tax year 2028.
The limits are a dated table in the calculator's data, covering January 1, 2025 to December 31, 2028.
| Limit | Single or head of household | Married filing jointly |
|---|---|---|
| Tips deduction cap | $25,000 | $25,000 |
| Overtime deduction cap | $12,500 | $25,000 |
| Phase-out starts (MAGI) | $150,000 | $300,000 |
| Cut per full $1,000 over | $100 | $100 |
How it works
The calculator follows Schedule 1-A, Parts I to III:
- MAGI = other income + all overtime pay + tips. If you type only the extra half, all overtime pay is taken as three times it (time and a half).
- Qualified overtime = one third of all overtime pay (the extra half of time-and-a-half pay), or the amount you type if you choose "Only the extra half".
- Capped amounts: tips up to $25,000; qualified overtime up to $12,500 ($25,000 jointly).
- Phase-out cut = $100 × ⌊(MAGI − threshold) ÷ $1,000⌋, and 0 when MAGI is at or below the threshold ($150,000, or $300,000 jointly). ⌊ ⌋ means round down to a whole number (Schedule 1-A lines 11 and 19).
- Each deduction = its capped amount − the cut, but not below 0. The cut applies to each deduction separately.
- Tax saved = (tips deduction + overtime deduction) × federal tax rate ÷ 100, plus the same times the state tax rate if you count state tax.
Assumptions
- MAGI is your adjusted gross income plus excluded foreign and Puerto Rico income. The calculator takes it as the sum of the three incomes, with no other adjustments.
- "All my overtime pay" means overtime paid at time and a half. Only the half-time premium the Fair Labor Standards Act requires qualifies, so pay above time and a half (double time) does not add to it.
- All tips entered are qualified tips from a listed occupation. You and your spouse have valid Social Security numbers.
- Married filing separately cannot claim either deduction, so the calculator gives no answer for it.
- The saving uses your top tax rate for the whole deduction. If the deduction moves you into a lower bracket, the true saving is a little less. Social Security and Medicare taxes are not changed.
When the data is out of date
The deductions exist for tax years 2025 to 2028 only, and the page offers only those years. After December 31, 2028, the answers for those years stay correct, and the result says “Covers tax years 2025 to 2028, the years the deductions exist”.
Worked examples by hand
Single, $50,000 of other income, $10,000 of overtime pay, $5,000 of tips, 22% rate (tax year 2025). MAGI = 50,000 + 10,000 + 5,000 = $65,000, below $150,000, so no cut. Qualified overtime = 10,000 ÷ 3 = $3,333.33. Tips deduction = $5,000. Overtime deduction = $3,333.33. Total $8,333.33. Tax saved = 8,333.33 × 0.22 = $1,833.33.
Single, $200,000 other income, $12,500 overtime pay, $25,000 tips, 22%. MAGI = $237,500, which is $87,500 over $150,000: 87 full steps, a cut of $8,700 from each deduction. Tips: 25,000 − 8,700 = $16,300. Overtime: 12,500 ÷ 3 = 4,166.67, minus 8,700 is below 0, so $0. Tax saved = 16,300 × 0.22 = $3,586.
Married filing jointly, $300,000 other income, $9,000 of qualifying overtime (the extra half only), $20,000 tips, 24% federal and 5% state (tax year 2026). All overtime pay is 3 × 9,000 = $27,000, so MAGI = 300,000 + 27,000 + 20,000 = $347,000, $47,000 over $300,000: a cut of $4,700. Tips: 20,000 − 4,700 = $15,300. Overtime: 9,000 − 4,700 = $4,300. Total $19,600. Federal saving 19,600 × 0.24 = $4,704; state 19,600 × 0.05 = $980; total $5,684.
Single, $150,500 other income, $10,000 tips, 24%. MAGI = $160,500, $10,500 over: 10 full steps (the $500 is dropped), a cut of $1,000. Tips deduction = 10,000 − 1,000 = $9,000. Tax saved = 9,000 × 0.24 = $2,160.
Other questions people ask
What is the One Big Beautiful Bill tax deduction?
The One Big Beautiful Bill Act (Public Law 119-21) added two federal deductions for tax years 2025 to 2028: one for qualified tips, up to $25,000 a return, and one for qualified overtime pay, up to $12,500 ($25,000 for married couples filing jointly). You can take them whether or not you itemize.
Who qualifies for these overtime and tip deductions?
Tips must be received in an occupation on the IRS list of occupations that customarily received tips. Overtime must be overtime pay required by the Fair Labor Standards Act. You need a valid Social Security number, and married people must file a joint return. The deductions phase out above $150,000 of modified adjusted gross income (MAGI), or $300,000 for joint filers.
How does the phase-out work for these deductions?
Each deduction is reduced separately by $100 for every full $1,000 your MAGI is over the threshold ($150,000, or $300,000 for joint filers). A part of $1,000 does not count: $10,500 over cuts $1,000. For a single filer, the overtime deduction is gone at $275,000 of MAGI and the tips deduction at $400,000. For joint filers, both are gone at $550,000.
What counts as qualified overtime compensation?
Only the extra pay above your regular rate that the Fair Labor Standards Act requires: the "half" in time and a half. If you earn $20 an hour and get $30 for an overtime hour, $10 of it qualifies. So one third of time-and-a-half overtime pay qualifies, up to $12,500 a year ($25,000 for joint filers).
What counts as qualified tips?
Voluntary cash or card tips received in an occupation on the IRS list of tipped occupations, and reported to the IRS, up to $25,000 a return. Tips as a business owner count only up to the net profit of that business.
How do I calculate my tax savings from these deductions?
Your tax savings depend on your marginal tax rate. For federal taxes, multiply your total deduction (overtime + tip deductions) by your federal tax rate. For state taxes, if your state conforms to federal definitions, multiply by your state tax rate. For example, if you have $15,000 in deductions and are in the 22% federal bracket, you'll save approximately $3,300 in federal taxes.
Do these deductions apply to state taxes?
It depends on your state. Some states automatically conform to federal tax law changes, while others may need to pass their own legislation. Check with your state's tax authority or a tax professional to determine if these deductions apply to your state income tax.
When do these deductions take effect?
These deductions are effective for the 2025 tax year, meaning they apply to income earned in 2025 and reported on your 2025 tax return filed in 2026.
How do I claim these deductions on my tax return?
Use Schedule 1-A (Form 1040), "Additional Deductions". Part II works out the tips deduction and Part III the overtime deduction. The total goes on Form 1040, line 13b. Your employer reports the qualified amounts on your Form W-2 or a separate statement.
Are there any restrictions on claiming both deductions?
No, you can claim both the overtime deduction and the tip deduction if you qualify for both. The limits are separate, so you could potentially deduct up to $37,500 ($12,500 overtime + $25,000 tips) as a single filer, or $50,000 ($25,000 overtime + $25,000 tips) as a married filer, subject to the phase-out rules.
Do these deductions affect payroll taxes?
No, only income tax is waived on these amounts. Overtime and tips remain subject to Social Security and Medicare taxes as before. The deductions only apply to federal (and potentially state) income tax calculations.
When do these tax breaks expire?
These deductions expire after 2028, so they are available for the 2025, 2026, 2027, and 2028 tax years.
How does the calculator determine my tax savings?
It follows Schedule 1-A: 1) MAGI = other income + all overtime pay + tips, 2) the tips deduction is your tips up to $25,000, and the overtime deduction is the qualifying half-time pay up to $12,500 ($25,000 jointly), 3) each is cut by $100 for every full $1,000 of MAGI over $150,000 ($300,000 jointly), 4) the total is multiplied by your tax rates.
What are the official sources for this tax law?
The law is Public Law 119-21 (H.R. 1, 119th Congress), sections 70201 and 70202. The IRS explains it on IRS.gov and on Schedule 1-A (Form 1040). Always consult a tax professional for advice about your situation.