The new "no tax on tips" rule is a federal income tax deduction, not a payroll-tax exemption, and it only covers cash tips in occupations the Treasury Department recognizes as customarily tipped. Enter your numbers below to estimate your federal income tax savings, using the cap and phaseout the statute actually sets.
Federal income tax estimate only. Not tax advice.
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Search interest in "no tax on tips" spiked after the One Big Beautiful Bill Act created a new federal income tax deduction for tip income, but the rule is narrower than the headline suggests. It is not a blanket exemption from tax on tips: it is a capped deduction for cash tips in occupations the Treasury Department recognizes as customarily tipped, it phases out at higher incomes, and it applies to federal income tax only. This calculator walks your numbers through the same cap and phaseout the statute sets, so you can see an honest estimate instead of a headline.
How this number is calculated
First, we figure your "qualified tips," which the law defines as cash tips (including charged tips and tip-sharing) received in an occupation that customarily and regularly received tips on or before December 31, 2024, and reported on your W-2, 1099, or Form 4137. If you told us these are self-employment or 1099 tips, we also cap them at your net profit from that work before this deduction, since the statute only lets a self-employed tipped worker count tips up to that business's net income. Next, we cap the qualified amount at $25,000, the same limit whether you file single or jointly. Then we apply the income-based phaseout: for every $1,000 your MAGI is over $150,000 (single) or $300,000 (joint), the capped amount is reduced by $100, down to zero. What is left is your eligible deduction, and we multiply it by your marginal federal bracket to estimate the income tax you save.
Why not every tip qualifies
The statute (new Internal Revenue Code section 224, added by the One Big Beautiful Bill Act) limits "qualified tips" to cash tips received in an occupation that customarily and regularly received tips on or before December 31, 2024, as the Treasury Department publishes in a list it was directed to release within 90 days of enactment. Tips must also be paid voluntarily, with no set amount and no negotiation, and cannot come from a "specified service trade or business" as defined for the separate qualified business income deduction, which covers many professional and consulting fields. This calculator assumes the tip income you enter already meets those tests; it does not check your occupation against the Treasury list itself.
How the income phaseout works
The deduction is not available in full to every income level. Once your modified adjusted gross income (MAGI) passes $150,000 (single) or $300,000 (married filing jointly), the statute reduces your capped deduction by $100 for every $1,000 your MAGI is over that threshold. This calculator applies that as a continuous 10% reduction rate on the excess MAGI, since the statute states the $100-per-$1,000 rate but does not specify how a partial $1,000 is rounded; treat the phaseout figure as a close estimate, not a penny-exact one, near the edges of a $1,000 bracket. The reduction is applied to your already-capped deduction, not to the $25,000 cap itself, matching the statute's own order of operations.
If your tips are from self-employment or 1099 work
If you receive tips in the course of your own trade or business rather than as a W-2 employee, the statute only lets those tips count toward this deduction up to the extent your gross income from that business (including the tips) exceeds your other business deductions for the year, before this deduction. In plain terms: your qualifying tips cannot exceed your net profit from that work. If your net profit is at least as large as your tips, all your tips qualify (subject to the cap and phaseout); if your net profit is smaller, only the net profit amount does.
What this deduction does not do
This is a federal income tax deduction only. The law that creates it amends subchapter B of the income tax code; it does not touch chapter 21, the Federal Insurance Contributions Act (FICA) rules that fund Social Security and Medicare. We found no language in the statute or in the IRS's own published tips-deduction guidance exempting tip income from Social Security or Medicare withholding, so this calculator assumes payroll tax is still owed on your full tip income, unless and until the IRS says otherwise. This deduction also does not apply to state income tax (each state decides its own conformity), does not change how much is withheld from your paycheck during the year unless your employer updates its withholding tables, requires a valid Social Security number on your return, is only available to married couples on a joint return, and is not itself a refund amount; it lowers your taxable income, and what that is worth to you depends on your full tax return.
What years this applies to
Per the statute's own effective-date and termination clauses, the deduction applies to taxable years beginning after December 31, 2024, and no deduction is allowed for any taxable year beginning after December 31, 2028. In plain terms: tax years 2025 through 2028, unless Congress changes the law before then.
Methodology and sources
Qualified tips are the cash tip income entered, unless you indicated these are self-employment or 1099 tips, in which case the amount is also capped at your entered net profit from that work (gross income including tips, minus other allocable business deductions, before this deduction). That figure is capped at $25,000, regardless of filing status. The capped amount is then reduced by 10% of the amount your MAGI exceeds $150,000 (single) or $300,000 (joint), floored at zero, modeling the statute's "$100 for each $1,000 over the threshold" phaseout as a continuous rate applied to the already-capped amount. The result is the eligible deduction, multiplied by your selected marginal federal bracket to estimate the federal income tax saved. Every figure is an estimate of federal income tax only.
It is a new federal income tax deduction, created by the One Big Beautiful Bill Act and codified as Internal Revenue Code section 224, for cash tips received in an occupation that customarily and regularly received tips on or before December 31, 2024. It applies to taxable years beginning after December 31, 2024, and is scheduled to end for taxable years beginning after December 31, 2028, per the statute's own termination clause.
Up to $25,000 a year, the same cap whether you file single or jointly. Above a modified adjusted gross income of $150,000 single or $300,000 joint, the deduction is reduced by $100 for every $1,000 your MAGI is over that threshold, until it reaches zero.
No. Qualified tips must be cash tips (including charged tips and tip-sharing), paid voluntarily with no set amount, in an occupation the Treasury Department lists as one that customarily and regularly received tips on or before December 31, 2024. Tips from a specified service trade or business, such as many professional and consulting fields, do not qualify. The Treasury Department's list of qualifying occupations had not yet been published at the time this calculator was built; the statute directs it within 90 days of enactment.
No. This is a federal income tax deduction only. The statute that creates it amends the federal income tax rules in subchapter B of the tax code; it does not amend the payroll tax provisions in chapter 21 that impose Social Security and Medicare tax. Nothing in the statute exempts tip income from FICA withholding, so we treat payroll tax as still owed unless and until the IRS states otherwise.
No. It estimates the federal income tax you may save at your marginal bracket, from this one deduction, before considering your withholding, other deductions and credits, state tax, or payroll tax. Your actual refund or balance due depends on your full return. This is not tax advice.
Disclaimer. FigureNerd calculators are educational tools designed to support your decision-making. We are not licensed CPAs, attorneys, or financial planners. Results are directional and may help prompt consultation with a qualified professional. Tax, legal, and financial outcomes depend on individual circumstances. This calculator estimates a federal income tax deduction and the federal income tax it may save at your marginal bracket; it does not calculate payroll (FICA/Social Security/Medicare) tax, state income tax, paycheck withholding, or your total refund, and it does not check your occupation against the Treasury Department's list of qualifying occupations. Consult a qualified tax professional or the IRS's own guidance for your specific situation.