How it’s calculated
IRS guidance sets the 2025–2028 tips cap at $25,000 per return and the overtime cap at $12,500, or $25,000 jointly. Each capped deduction falls by $100 per complete $1,000 of MAGI above $150,000, or $300,000 jointly. Schedule 1-A lines 11 and 19 round the $1,000 steps down. Self-employed tips are first limited to that business’s net income. The tax-saving illustration multiplies deductions by your entered marginal rate; it does not calculate a tax return.
Worked example
A single filer with $90,000 MAGI, $12,000 qualified employee tips and $6,000 overtime premium has an $18,000 deduction. At an assumed 22% rate, the illustration is $3,960. At $151,000 MAGI each deduction is reduced by $100; at $150,999 neither has yet lost a complete $100 step.
Before you use the result
Tips must be voluntary, reported and from an IRS-listed tipped occupation; mandatory service charges are not tips. Specified service trade/business restrictions and reporting rules apply. Overtime means only the premium required by FLSA section 7, normally the extra half of time-and-a-half pay: $9,000 total time-and-a-half overtime contains $3,000 premium. Contractual or state-only overtime is not automatically eligible. Valid SSNs are required and married taxpayers must file jointly. Payroll taxes and potentially state taxes still apply. Multiple tipped businesses need separate net-income limits. Credits, taxable-income floors and bracket crossings can make actual savings lower.
Frequently asked questions
Is all overtime pay tax-free?
No. Only qualifying FLSA premium pay counts toward a capped federal deduction. Regular pay within overtime hours and payroll taxes remain.
Does a joint return double the tips cap?
No. Tips remain capped at $25,000 per return. The overtime cap increases to $25,000 jointly.
Can I claim if I itemize?
The deductions are available to qualifying itemizers and non-itemizers. This calculator does not determine all eligibility conditions.