No Tax on Tips Calculator
Estimate your federal "no tax on tips" deduction and how much it saves you, from the cash tips you reported to your employer.
On a 2026 W-2, this is Box 12, code TP. Not sure? Use the W-2 decoder →
Your deduction cap
$25,000.00
Your deduction
$8,000.00
Estimated federal tax saved
$960.00
FICA on your tips (still withheld — not affected by this deduction)
$612.00
This is a deduction, not an exemption. Your employer still withheld income tax on your tips during the year. The benefit shows up as a larger refund or smaller balance due when you file. Only tips earned in an occupation on the IRS's tipped-occupation list qualify — see your Box 14b Treasury Tipped Occupation Code.
This is an estimate, not tax advice. Figures are based on published IRS guidance for tax years 2025–2028. Your actual deduction depends on your full return. Confirm with a tax professional or the IRS before filing. Nothing you enter here leaves your browser.
Reviewed by Saurabh Sharma and Ashay Saraswat · last verified August 30, 2026 against IRS guidance.
What "no tax on tips" actually means
"No tax on tips" is the informal name for a new federal income tax deduction created by the One, Big, Beautiful Bill Act (OBBBA), in effect for tax years 2025 through 2028. Like the overtime deduction it's bundled with, it isn't a blanket exemption: it's an above-the-line deduction, claimed on the new Schedule 1-A whether you itemize or take the standard deduction, that reduces your federal taxable income by up to $25,000 of reported cash tips.
Your employer still withholds federal income tax, Social Security, and Medicare on your full tip income throughout the year, exactly as before. The deduction only shows up when you file: it lowers the taxable income your federal tax bill is calculated on, which typically means a larger refund or a smaller amount owed, not a bigger paycheck today.
Who qualifies
The deduction covers cash tips you report to your employer, in an occupation the Treasury has identified as customarily and regularly receiving tips on or before December 31, 2024. That occupation is recorded on your W-2 as a Treasury Tipped Occupation Code (TTOC) in Box 14b — a code of 000 means your occupation isn't on the qualifying list. See theW-2 OBBBA code decoder if you're not sure what your W-2's codes mean.
As with the overtime deduction, married taxpayers must file jointly to claim it — married filing separately is ineligible — and a valid Social Security number is required on the return. The deduction phases out above $150,000 MAGI (single/head of household) or $300,000 (married filing jointly), reduced by $100 for every full $1,000 over the threshold, reaching zero at $275,000 / $550,000.
When it expires
The deduction applies to tax years 2025 through 2028 and is currently scheduled to expire after that unless Congress extends it.
This is general information, not tax advice, based on published IRS guidance for tax years 2025–2028. Confirm with a tax professional or the IRS before filing.
Frequently asked questions
What is "no tax on tips" and has it passed?
It's a new above-the-line federal tax deduction created by the One, Big, Beautiful Bill Act (OBBBA), signed into law July 4, 2025. It lets eligible workers deduct up to $25,000 of reported cash tips from their federal taxable income for tax years 2025 through 2028. It is not a full exemption from tax on tips — you still pay income tax on tip income during the year through normal withholding.
When does no tax on tips start?
The deduction is retroactive to the beginning of tax year 2025, so it applies to tips earned starting January 1, 2025, not just going forward. You claim it when you file your 2025 return (in early 2026) or any return through tax year 2028, on the new Schedule 1-A.
How does the no tax on tips deduction work?
You report your cash tips to your employer as usual, and they're included in your Box 1 wages and taxed normally throughout the year. When you file, you claim a deduction on Schedule 1-A for up to $25,000 of those reported tips, which reduces your federal taxable income and either increases your refund or lowers what you owe. The deduction only applies if you worked in an occupation the Treasury has identified as customarily and regularly tipped, and phases out above $150,000 MAGI (single/HoH) or $300,000 (married filing jointly).
Does the no tax on tips deduction cover all tips?
No — only cash tips (including tips paid by credit/debit card and processed through payroll) that you report to your employer, and only if you work in a qualifying tipped occupation as identified by the Treasury Tipped Occupation Code (TTOC) list. Unreported tips and tips in a non-qualifying occupation don't count.