2026 no tax on tips and overtime calculator
See how much of your tips and overtime you may be able to deduct from your federal taxable income under the One Big Beautiful Bill Act (OBBBA), including the caps and the income phase-out.
Decode your Form W-2, Box 12
The 2026 Form W-2 adds three new Box 12 codes (for 2025, many employers reported these amounts in Box 14 instead). Choose the code you see on your form to learn what it means.
Total amount of tips subject to the "no tax on tips" deduction
Qualifies for the deduction- In plain English
- The voluntary cash and card tips your employer identified as qualified tips, earned in an occupation on the Treasury Department’s list of jobs that customarily received tips before 2025.
- Does it qualify?
- Yes. This is the starting point for the qualified tips deduction under IRC §224, capped at $25,000 per return and reduced once MAGI passes $150,000 ($300,000 if married filing jointly).
- Where it goes on your return
- Schedule 1-A, Part II (No Tax on Tips). The total from Schedule 1-A carries to Form 1040.
Watch out: Your employer does not apply the $25,000 cap or the income phase-out. You figure those on your return.
These amounts belong in Box 12. Some payroll providers also list tips or overtime in Box 14, which is a free-form box. Use the Box 12 amounts when they are available. See every Box 12 code
Estimate your 2026 tips and overtime deduction
Other Schedule 1-A deductions
- Senior deduction
The extra $6,000 deduction for people 65 and older, after the income phase-out.
- Car loan interest deduction
Up to $10,000 of interest on a loan taken out after 2024 for a new vehicle assembled in the United States.
Frequently asked questions
What is the OBBBA Tips and Overtime deduction?
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, created two new federal income tax deductions for tax years 2025 through 2028: one for qualified tips (IRC §224) and one for qualified overtime compensation.
You can deduct up to $25,000 of qualified tips per return, and up to $12,500 of qualified overtime premium pay ($25,000 if married filing jointly). Both deductions are claimed on Schedule 1-A and are available whether you take the standard deduction or itemize. They reduce your taxable income, not your adjusted gross income.
To qualify, you need a valid Social Security number, and married couples must file jointly. Tips must be earned in an occupation on the Treasury Department’s list of jobs that customarily received tips, and overtime must be required under the Fair Labor Standards Act (FLSA).
What do Codes TA, TP, and TT mean on my W-2 Box 12?
Code TA reports your employer’s contributions to a Trump Account for your child. It is informational only and does not affect the tips or overtime deduction.
Code TP reports the total qualified tips your employer identified as eligible for the “no tax on tips” deduction. Use this amount as the starting point for the tips portion of Schedule 1-A.
Code TT reports your qualified overtime compensation: only the premium portion of your overtime pay (the extra “half” in time-and-a-half), not your total overtime earnings. Use this amount as the starting point for the overtime portion of Schedule 1-A.
Your employer does not apply the deduction caps or the income phase-out. You calculate those when you file.
Does this deduction eliminate payroll (FICA) taxes?
No. The OBBBA tips and overtime deductions only reduce your federal income tax. Social Security and Medicare taxes (FICA) still apply to 100% of your reported tips and overtime, and your employer will continue to withhold them from your paycheck.
State income tax treatment varies. A few states follow the federal deduction, some follow it for tips only or have their own smaller break, and most tax tips and overtime in full, so check your state’s rules separately.
What is the MAGI income phase-out limit for 2026?
For 2026, both deductions begin to phase out when your modified adjusted gross income (MAGI) exceeds $150,000 for single and head of household filers, or $300,000 for married couples filing jointly.
For every full $1,000 of MAGI above the threshold, your deduction is reduced by $100. The qualified tips deduction is fully phased out at $400,000 of MAGI for single and head of household filers, and $550,000 for joint filers. The qualified overtime deduction is fully phased out at $275,000 for single and head of household filers, and $550,000 for joint filers.
For most taxpayers, MAGI is the same as the adjusted gross income (AGI) on your Form 1040. It can be higher if you exclude foreign earned income or income from U.S. territories.
What other deductions are on Schedule 1-A?
Schedule 1-A also has two other deductions. The enhanced deduction for seniors is up to $6,000 for each person 65 or older, reduced once MAGI passes $75,000 ($150,000 if married filing jointly). The car loan interest deduction is up to $10,000 of interest on a loan taken out after 2024 for a new vehicle assembled in the United States, reduced once MAGI passes $100,000 ($200,000 if married filing jointly). We have a separate calculator for each.
The deductions on Schedule 1-A add up to one total that reduces your taxable income, whether you take the standard deduction or itemize.
This calculator provides educational estimates and is not tax advice. Results are not a tax return. Verify your figures with the official IRS Schedule 1-A instructions or a CPA or enrolled agent.