{
  "id": "overtime-and-tip-tax",
  "version": "4879aa54c4e5",
  "status": "published",
  "name": "Overtime and Tip Tax Calculator",
  "question": "What is my overtime and tip tax cut?",
  "summary": "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.",
  "category": "finance",
  "subcategory": "tax-and-pay",
  "url": "https://www.acalculator.org/finance/overtime-and-tip-tax-calculator",
  "markdown": "https://www.acalculator.org/finance/overtime-and-tip-tax-calculator.md",
  "kind": "function",
  "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 ($300,000 jointly). Tax saved = total deduction × tax rate.",
  "assumptions": [
    "Tax years 2025 to 2028 only; the limits are from IRS Schedule 1-A (Form 1040) 2025, the 2026 draft, and the IRS statement that they are the same through 2028.",
    "MAGI is taken as other income + all overtime pay + tips: no other adjustments and no excluded foreign or Puerto Rico income. With “Only the extra half”, all overtime pay is taken as three times the amount typed (time and a half).",
    "“All my overtime pay” means pay at time and a half, so one third of it is the extra half that qualifies. Pay above time and a half does not add to the qualifying part.",
    "All tips entered are qualified tips from an occupation on the IRS list; they must be reported, and you need a valid Social Security number.",
    "Married people must file jointly to claim; married filing separately gets no deduction.",
    "The saving is the deduction times your top tax rate, so it is an estimate: a deduction that crosses a bracket saves a little less. Social Security and Medicare taxes are not reduced."
  ],
  "inputs": {
    "$schema": "https://json-schema.org/draft/2020-12/schema",
    "type": "object",
    "properties": {
      "year": {
        "title": "Tax year",
        "description": "The tax year. The deductions exist for 2025 to 2028.",
        "type": "string",
        "enum": [
          "2025",
          "2026",
          "2027",
          "2028"
        ]
      },
      "filingStatus": {
        "title": "Filing status",
        "description": "Single (also head of household or surviving spouse), married filing jointly, or married filing separately.",
        "type": "string",
        "enum": [
          "single",
          "married",
          "separate"
        ]
      },
      "regularIncome": {
        "title": "Other income",
        "description": "All other income for the year: regular wages and anything else in your adjusted gross income.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 100000000
      },
      "overtimeIncome": {
        "title": "Overtime pay",
        "description": "Overtime pay for the year, either all of it or only the extra half, as chosen below.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 100000000
      },
      "otPart": {
        "title": "The overtime amount is",
        "description": "All overtime pay at time and a half (one third of it is the extra half that qualifies), or only the extra half, as your employer reports it.",
        "type": "string",
        "enum": [
          "all",
          "half"
        ]
      },
      "tipIncome": {
        "title": "Tips",
        "description": "Qualified tips for the year, received in an occupation on the IRS list of tipped occupations.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 100000000
      },
      "federalTaxRate": {
        "title": "Federal tax rate",
        "description": "Your top (marginal) federal income tax rate.",
        "type": "number",
        "x-unit": "percent",
        "minimum": 0,
        "maximum": 100
      },
      "includeStateTax": {
        "title": "My state also allows these deductions",
        "description": "Whether to count a state income tax saving at the state rate below.",
        "type": "boolean"
      },
      "stateTaxRate": {
        "title": "State tax rate",
        "description": "Your top state income tax rate, if your state follows these deductions.",
        "type": "number",
        "x-unit": "percent",
        "minimum": 0,
        "maximum": 100
      }
    }
  },
  "outputs": {
    "savings": {
      "label": "Tax you save",
      "description": "The federal saving plus the state saving, if counted.",
      "format": "money"
    },
    "deduction": {
      "label": "Total deduction",
      "description": "The tips deduction plus the overtime deduction.",
      "format": "money"
    },
    "tipDeduction": {
      "label": "Tips deduction",
      "description": "Qualified tips up to $25,000, less the phase-out (Schedule 1-A line 13).",
      "format": "money"
    },
    "overtimeDeduction": {
      "label": "Overtime deduction",
      "description": "Qualified overtime (the extra half) up to $12,500, or $25,000 jointly, less the phase-out (Schedule 1-A line 21).",
      "format": "money"
    },
    "qualifiedOvertime": {
      "label": "Qualified overtime",
      "description": "The extra half of time-and-a-half pay: one third of all overtime pay, or the amount given.",
      "format": "money"
    },
    "federalSavings": {
      "label": "Federal tax saved",
      "description": "The total deduction times the federal tax rate.",
      "format": "money"
    },
    "stateSavings": {
      "label": "State tax saved",
      "description": "The total deduction times the state tax rate, when counted.",
      "format": "money"
    },
    "magi": {
      "label": "Modified AGI",
      "description": "Other income plus all overtime pay plus tips, taken as the modified adjusted gross income. With “Only the extra half”, all overtime pay is three times it.",
      "format": "money"
    },
    "cut": {
      "label": "Phase-out cut per deduction",
      "description": "$100 for every full $1,000 of MAGI over $150,000, or $300,000 jointly.",
      "format": "money"
    }
  },
  "defaultAnswer": {
    "inputs": {
      "year": "2026",
      "filingStatus": "single",
      "regularIncome": 50000,
      "overtimeIncome": 10000,
      "otPart": "all",
      "tipIncome": 5000,
      "federalTaxRate": 22,
      "includeStateTax": false,
      "stateTaxRate": 5
    },
    "outputs": {
      "savings": 1833.3333333333335,
      "deduction": 8333.333333333334,
      "tipDeduction": 5000,
      "overtimeDeduction": 3333.3333333333335,
      "qualifiedOvertime": 3333.3333333333335,
      "federalSavings": 1833.3333333333335,
      "magi": 65000,
      "cut": 0
    },
    "text": "With $5,000.00 in tips and $10,000.00 of overtime pay, you deduct $8,333.33 and save $1,833.33."
  },
  "examples": [
    {
      "given": {
        "year": "2025",
        "filingStatus": "single",
        "regularIncome": 50000,
        "overtimeIncome": 10000,
        "otPart": "all",
        "tipIncome": 5000,
        "federalTaxRate": 22,
        "includeStateTax": false
      },
      "expect": {
        "qualifiedOvertime": 3333.3333333333335,
        "tipDeduction": 5000,
        "overtimeDeduction": 3333.3333333333335,
        "deduction": 8333.333333333334,
        "federalSavings": 1833.3333333333335,
        "savings": 1833.3333333333335,
        "magi": 65000,
        "cut": 0
      },
      "source": "IRS Schedule 1-A (Form 1040) 2025 Parts II and III; hand calculation in content.mdx"
    },
    {
      "given": {
        "year": "2025",
        "filingStatus": "single",
        "regularIncome": 200000,
        "overtimeIncome": 12500,
        "otPart": "all",
        "tipIncome": 25000,
        "federalTaxRate": 22,
        "includeStateTax": false
      },
      "expect": {
        "magi": 237500,
        "cut": 8700,
        "tipDeduction": 16300,
        "overtimeDeduction": 0,
        "deduction": 16300,
        "savings": 3586
      },
      "source": "IRS Schedule 1-A (Form 1040) 2025 lines 7 to 13 and 15 to 21; hand calculation in content.mdx"
    },
    {
      "given": {
        "year": "2026",
        "filingStatus": "married",
        "regularIncome": 300000,
        "overtimeIncome": 9000,
        "otPart": "half",
        "tipIncome": 20000,
        "federalTaxRate": 24,
        "includeStateTax": true,
        "stateTaxRate": 5
      },
      "expect": {
        "magi": 347000,
        "cut": 4700,
        "tipDeduction": 15300,
        "overtimeDeduction": 4300,
        "deduction": 19600,
        "federalSavings": 4704,
        "stateSavings": 980,
        "savings": 5684
      },
      "source": "IRS Schedule 1-A (Form 1040) 2025 (same limits for 2026); hand calculation in content.mdx"
    },
    {
      "given": {
        "year": "2025",
        "filingStatus": "single",
        "regularIncome": 150500,
        "overtimeIncome": 0,
        "otPart": "all",
        "tipIncome": 10000,
        "federalTaxRate": 24,
        "includeStateTax": false
      },
      "expect": {
        "magi": 160500,
        "cut": 1000,
        "tipDeduction": 9000,
        "savings": 2160
      },
      "source": "IRS Schedule 1-A (Form 1040) 2025 line 11: a part of $1,000 is dropped; hand calculation in content.mdx"
    }
  ],
  "sources": [
    "IRS, Schedule 1-A (Form 1040) 2025, Additional Deductions, Parts II and III (Cat. No. 95872Q, created 11/4/25). https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf",
    "IRS, draft Schedule 1-A (Form 1040) 2026 (early release, created 6/16/26): same caps and phase-out. https://www.irs.gov/pub/irs-dft/f1040s1a--dft.pdf",
    "IRS, \"Working Families Tax Cuts: Tax deductions for working Americans and seniors\" (updated July 25, 2025): tax years 2025 to 2028, caps and thresholds. https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors",
    "IRS, \"Questions and answers about the new deduction for qualified overtime compensation\" (FS-2026-01, January 2026): only the pay above the regular rate required by FLSA section 7 qualifies. https://www.irs.gov/newsroom/questions-and-answers-about-the-new-deduction-for-qualified-overtime-compensation",
    "Public Law 119-21 (H.R. 1, 119th Congress), sections 70201 (qualified tips, IRC section 224) and 70202 (qualified overtime compensation, IRC section 225). https://www.congress.gov/bill/119th-congress/house-bill/1"
  ],
  "related": [
    "salary",
    "overtime",
    "time-and-a-half"
  ],
  "changelog": [
    {
      "date": "2026-09-29",
      "note": "Related links to salary, overtime and time and a half (user test 2026-09-29)."
    }
  ]
}