No Tax on Tips & Overtime Calculator
For Tax Year 2025 (filing in 2026)
Calculate your federal tax savings under the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025. See exactly how much you'll save from the No Tax on Tips, No Tax on Overtime, and Senior Citizen Bonus Deduction provisions.
Your Information
RequiredAll wages, tips, and overtime from W-2 Box 1. Ballpark is fine!
Interest, dividends, etc. Leave blank if none.
Tips Income
No Tax on TipsOvertime Pay
No Tax on OvertimeImportant: What This Law Does NOT Do
- FICA taxes still apply — Social Security (6.2%) + Medicare (1.45%) are NOT reduced
- Only the premium portion of overtime qualifies (the "half" in time-and-a-half)
- State-mandated OT (e.g., CA daily OT after 8 hrs) does NOT qualify — only federal FLSA
- FLSA-exempt salaried employees generally get $0 overtime deduction
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Last updated: March 2026 · Based on IRS Schedule 1-A (OBBBA, signed July 4, 2025)
Sources: IRS Rev. Proc. 2024-40 · FLSA §7 · IRS Notice 2025-69
This calculator provides estimates only. Consult a qualified tax professional for your specific situation.
What is the No Tax on Tips Act?
The "No Tax on Tips" provision, part of the One Big Beautiful Bill Act (OBBBA) signed by President Trump on July 4, 2025, allows workers in tipped occupations to deduct up to $25,000 in qualified tips from their federal taxable income. This is a "below-the-line" deduction reported on the new IRS Schedule 1-A.
Who Qualifies for the Tips Deduction?
You must work in an IRS-recognized tipped occupation. This includes over 68 occupations across 8 categories: food service workers (waiters, bartenders, baristas), hospitality workers (hotel bellhops, housekeepers), personal service providers (hairstylists, massage therapists), transportation workers (taxi drivers, rideshare drivers), and more.
Phase-Out for High Earners
The tips deduction phases out for high earners. If your Modified Adjusted Gross Income (MAGI) exceeds $150,000 (single) or $300,000 (married filing jointly), your deduction is reduced by $100 for every $1,000 of excess income. The deduction is fully eliminated at $400,000 (single) or $550,000 (MFJ).
What is the No Tax on Overtime Act?
The overtime deduction allows non-exempt employees to deduct the premium portion of their overtime pay. For time-and-a-half workers, this is the "half" — one-third of total overtime pay. Only hours worked over 40 per workweek under the Fair Labor Standards Act (FLSA) qualify.
Overtime Deduction Cap
The cap is $12,500 for single filers and $25,000 for married filing jointly. The same phase-out rules apply as tips: $100 reduction per $1,000 of MAGI over the threshold.
Important: Only Premium Portion Qualifies
A common misunderstanding is that ALL overtime pay is tax-free. This is not correct. Only the premium portion — the extra pay above your regular rate — qualifies. For time-and-a-half, this means only 1/3 of your total overtime pay is deductible.
Senior Citizen Bonus Deduction
Taxpayers age 65 and older receive an additional $6,000 deduction per qualifying individual. For married couples filing jointly where both spouses are 65+, the deduction is $12,000. This phases out at 6% of MAGI over $75,000 (single) or $150,000 (MFJ).
Does This Affect FICA Taxes?
No. Social Security tax (6.2%) and Medicare tax (1.45%) still apply to ALL wages, including tips and overtime. The OBBBA deductions only reduce your federal income tax liability. This is one of the most commonly misunderstood aspects of the law.
State Tax Impact
Only a handful of states have adopted the OBBBA deductions as of early 2026. Idaho, Iowa, Michigan, Montana, and North Dakota fully conform. Colorado allows only the tips deduction, and Oregon allows tips and overtime but not the senior deduction. Most states, including California, New York, and Illinois, have explicitly decoupled from the OBBBA.
IRS Schedule 1-A
The new Schedule 1-A is attached to Form 1040 and has six parts: MAGI calculation (Part I), Tips deduction (Part II), Overtime deduction (Part III), Car loan interest deduction (Part IV), Senior citizen deduction (Part V), and Total (Part VI). The total from Line 38 flows to Form 1040, Line 13b as a below-the-line deduction.
Frequently Asked Questions
Are tips completely tax-free now?
No. Tips are exempt from federal income tax (up to $25,000), but you still owe FICA taxes (Social Security 6.2% + Medicare 1.45%) on all tip income. State income tax may also still apply depending on your state.
Is ALL my overtime pay tax-free?
No. Only the premium portion of overtime is deductible. For time-and-a-half pay (1.5×), only 1/3 of your total overtime pay qualifies. The straight-time portion of overtime hours is still taxed normally. The cap is $12,500 (single) or $25,000 (MFJ).
Does California allow the tips/overtime deduction?
No. California has explicitly decoupled from the OBBBA. As of 2026, the No Tax on Tips and Overtime deductions only apply to your federal tax return in California. You will still owe California state income tax on all tips and overtime.
I'm a salaried employee. Do I qualify for the overtime deduction?
Likely not. The overtime deduction is only for FLSA-covered, non-exempt employees. Most salaried employees earning $35,568+/year are classified as FLSA-exempt and do not receive overtime pay. If your employer does not pay you overtime, you have no qualified overtime to deduct.
What is MAGI for Schedule 1-A?
For Schedule 1-A purposes, your Modified Adjusted Gross Income (MAGI) is generally the same as your Adjusted Gross Income (AGI) from Form 1040, Line 11. The phase-out thresholds are $150,000 (single/HoH) and $300,000 (MFJ) for both tips and overtime deductions.
Does state daily overtime count (like California's 8-hour rule)?
No. Only overtime under the federal Fair Labor Standards Act (FLSA) qualifies. The FLSA defines overtime as hours worked over 40 in a single workweek. State laws that provide overtime after 8 hours in a day (like California) do not create a qualified OBBBA deduction.
When did this law take effect?
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. The tips, overtime, and senior deductions apply to tax year 2025 and beyond. You can claim these deductions when filing your 2025 federal tax return (filed in early 2026).