No Tax on Tips & Overtime Calculator (2026)
Estimate how much the new federal deductions for tips, overtime, and seniors cut your 2026 tax bill. Enter your total income, the tips and overtime you received, and whether you are 65 or older, and the calculator applies each deduction’s cap and income phase-out, then shows the federal income tax you save.
The One Big Beautiful Bill Act created these three deductions for tax years 2025 through 2028. You can claim them even if you take the standard deduction, but they reduce only federal income tax — Social Security and Medicare are still withheld on every dollar of tips and overtime.
Calculator
Only the extra half-time is deductible: $6,000 of time-and-a-half pay includes a $2,000 overtime premium.
Estimated 2026 federal income tax saved
$1,680
from $14,000 in new deductions · 12% top bracket
- No tax on tips deduction
- $12,000
- No tax on overtime deduction
- $2,000
- Senior deduction
- $0
- Taxable income before
- $38,900
- Taxable income after
- $24,900
- Federal income tax after
- $2,740
Your deductions
Estimate only — not tax advice. These deductions apply to tax years 2025–2028, lower federal income tax only (Social Security, Medicare, and most state taxes still apply), and require married couples to file jointly. Tips must be from an occupation that customarily received tips; overtime must be FLSA-required overtime. For 2026, you can deduct only the tips and overtime reported on your W-2 (Box 12, codes TP and TT), a 1099, or Form 4137. Assumes the standard deduction and no credits.
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Calculation Formulas
Qualified tips from an occupation that customarily received tips before 2025. The cap is per return, and the deduction phases out completely at $400,000 single or $550,000 joint.
Example:
$15,000 of tips on $45,000 income → $15,000 deduction (no phase-out).
Only the FLSA-required premium counts — one third of time-and-a-half pay. Overtime paid only because of state law, a union contract, or employer policy does not qualify.
Example:
$9,000 of time-and-a-half pay → $3,000 premium → $3,000 deduction.
Available to each spouse who is 65 or older by December 31 and has a valid Social Security number.
Example:
Single, $100,000 income: $6,000 − 6% × $25,000 = $4,500.
Uses the 2026 federal brackets and standard deduction. The deductions reduce taxable income, so the saving is roughly your top bracket rate times the deduction.
Key Figures
| Figure | Value | Description |
|---|---|---|
| Tips cap | $25,000 | Per return, single or joint. |
| Overtime cap | $12,500 / $25,000 | Single or head of household / married filing jointly. |
| Senior deduction | $6,000 per person | Age 65+ by year-end, valid SSN required. |
| Phase-out start (tips & OT) | $150,000 / $300,000 | Modified AGI, single / joint; $100 less per $1,000 above. |
| Phase-out start (senior) | $75,000 / $150,000 | Modified AGI, single / joint; 6% of the excess. |
| Years available | 2025–2028 | Temporary deductions; they expire after 2028 unless extended. |
Note: Results are estimates for planning purposes. Rates, fees, taxes, and insurance vary by lender and location — confirm exact figures with a licensed professional before making financial decisions.
Standards & Sources
Last verified: October 2026
- One Big Beautiful Bill Act (P.L. 119-21)
Created the qualified tips deduction (IRC §224), the qualified overtime compensation deduction (IRC §225), and the enhanced deduction for seniors for tax years 2025–2028, all available to taxpayers who take the standard deduction.
- Fair Labor Standards Act overtime
Only overtime required by FLSA §7 — time and a half for hours over 40 in a workweek — qualifies, and only the premium portion above the regular rate.
- Income tax only
The deductions reduce federal taxable income. Social Security and Medicare (FICA) are still owed on all tips and overtime, and state treatment varies.
- 2026 reporting: W-2 Box 12 codes TP and TT
For 2026, tips (code TP) and qualified overtime (code TT) are reported in Box 12 of Form W-2, and the deduction is limited to amounts reported on a W-2, 1099, or Form 4137 (2026 Form W-2 instructions; IRS FS-2026-13).
- Qualified tips final regulations (T.D. 10044)
Treasury’s April 2026 final rule lists more than 70 qualifying tipped occupations and excludes mandatory service charges. The statute’s exclusion for specified service businesses isn’t enforced until separate final regulations are issued (Notice 2025-69).
- Modified AGI approximation
Phase-outs use modified adjusted gross income. This calculator treats your total income as MAGI, which matches for most wage earners without large above-the-line adjustments.
How to Use This Calculator
- Choose your filing status — married couples must file jointly to claim any of the three deductions.
- Enter your total 2026 income, including all wages, tips, and overtime.
- Enter your qualified tips, and your overtime as either total time-and-a-half pay or just the premium portion.
- Say whether you (or your spouse) are 65 or older, then read your deductions and the federal income tax they save.
Frequently Asked Questions
Is there really no tax on tips in 2026?
Partly. For tax years 2025 through 2028 you can deduct up to $25,000 of qualified tips from your federal taxable income, even if you take the standard deduction. Tips are still subject to Social Security and Medicare tax, and to state income tax in states that don’t follow the federal rule. The deduction shrinks by $100 for every $1,000 of income above $150,000 ($300,000 for joint filers).
How does the no tax on overtime deduction work?
You can deduct the overtime premium — the extra half of time-and-a-half pay that the Fair Labor Standards Act requires for hours over 40 a week — up to $12,500 a year, or $25,000 on a joint return. Your regular rate for those hours is still taxable. If you earned $9,000 of time-and-a-half pay, the deductible premium is $3,000. The cap phases down above $150,000 of income ($300,000 joint).
Who qualifies for the $6,000 senior deduction?
Anyone 65 or older by the end of the tax year with a valid Social Security number can deduct an extra $6,000 — $12,000 for a married couple filing jointly if both qualify. It is on top of the standard deduction and the existing additional deduction for age 65. Each $6,000 is reduced by 6% of income over $75,000 ($150,000 joint), so it disappears at $175,000 single or $250,000 joint.
Can married couples filing separately claim these deductions?
No. Married taxpayers must file a joint return to claim the tips, overtime, or senior deduction.
Do these deductions lower my paycheck withholding?
They can. The deductions are claimed on your tax return, but the 2026 Form W-4 lets you account for expected deductions in Step 4(b) so less income tax is withheld from each paycheck. Social Security and Medicare withholding do not change.
Guides to go with this calculator
No Tax on Tips: How the $25,000 Deduction Works
Tipped workers can now deduct up to $25,000 of tips from their federal taxable income — but it isn’t truly “no tax.” Here’s exactly what it covers, what it doesn’t, and what it’s worth.
No Tax on Overtime: What You Can Deduct in 2026
Overtime isn’t tax-free under the new law — only the extra half of your time-and-a-half pay is deductible. Here’s how to figure your deduction and what it’s worth.
How Much to Tip: A Guide for Every Situation
Tipping norms have drifted, and the screen at the counter doesn’t help. Here are the common U.S. ranges for every situation, whether to tip on tax, and the mental math to get it right in seconds.
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