Two separate federal deductions from the same law, with the same income phaseout but different caps. Here's what actually qualifies, and what each one is worth.
The One Big Beautiful Bill Act created two new federal income tax deductions in the same law: one for tip income, one for overtime pay. Both showed up in headlines as a blanket "no tax" promise, and both are actually narrower, capped deductions that phase out at higher incomes. If you have both kinds of pay, here's how the two rules relate, what each one actually covers, and two worked examples using the exact math our calculators run.
Both deductions require a valid Social Security number, and if you're married, you must file a joint return to claim either one. Beyond that, they diverge:
Nothing in the statute stops you from claiming both in the same year if you have qualifying income from each. Run your tip income through the No Tax on Tips Calculator and your overtime through the No Tax on Overtime Calculator separately; each has its own cap and its own qualified-income math.
Both deductions phase out at the same modified adjusted gross income (MAGI) thresholds, reduced by $100 for every $1,000 your MAGI is over the threshold, down to zero. Only the caps differ.
| Deduction | Annual cap | MAGI phaseout starts |
|---|---|---|
| No tax on tips | $25,000 flat, single or joint | $150,000 single / $300,000 joint |
| No tax on overtime | $12,500 single, $25,000 joint | $150,000 single / $300,000 joint |
Both pages we cite were opened directly this session (dated March 5, 2026 on IRS.gov) and both confirm the caps and the $150,000/$300,000 phaseout thresholds shown above. Neither deduction touches payroll tax: both amend the federal income tax rules in subchapter B of the tax code, not chapter 21's Social Security and Medicare provisions, so both of our calculators assume payroll tax is still owed on the full tip or overtime amount unless and until the IRS says otherwise. Neither changes state income tax, and neither is available to a married taxpayer filing separately.
These are the exact default numbers each calculator shows a first-time visitor, so you can check our math against the live tools yourselves.
Single filer, $8,000 total overtime pay (standard time-and-a-half), $70,000 MAGI, 22% marginal bracket.
Single filer, $15,000 reported cash tips, not self-employed, $70,000 MAGI, 22% marginal bracket.
Both examples are federal income tax estimates only, before payroll tax, state tax, withholding, or your other deductions and credits. Try your own numbers in the No Tax on Overtime Calculator and the No Tax on Tips Calculator.
No. They are two separate federal income tax deductions created by the same law, the One Big Beautiful Bill Act, and they share the same MAGI phaseout thresholds, but they have different caps and different definitions of what qualifies. Tips are capped at a flat $25,000. Overtime is capped at $12,500 single or $25,000 joint, and only the premium portion of overtime pay counts.
Yes, if you have both qualifying tip income and qualifying overtime pay, nothing in the statute prevents claiming both. Each has its own cap and its own qualified-income calculation, but they share the same MAGI phaseout thresholds of $150,000 single and $300,000 joint.
No. Both are federal income tax deductions only. Neither amends the payroll tax rules that fund Social Security and Medicare, so both calculators assume payroll tax is still owed on the full tip or overtime amount, unless and until the IRS says otherwise.
Both apply to taxable years beginning after December 31, 2024, and both are scheduled to end for taxable years beginning after December 31, 2028, per the statute's own termination clauses, unless Congress changes the law before then.
Estimate your federal tax savings from the overtime deduction using your own numbers.
Estimate your federal tax savings from the tips deduction using your own numbers.
See your regular take-home pay alongside either deduction's estimated savings.
Work through your full self-employment tax picture if you're claiming the tips deduction as a 1099 worker.
Check whether either deduction changes what you owe for estimated quarterly payments.