Your Pay Details
Your hourly or salary income before tips. Servers paid the federal tipped minimum ($2.13/hr) put that × hours; salaried workers put their full base salary.
Reported tips for the year. Cash + credit-card tips both count if the occupation is on Treasury's qualifying list.
Pre-Tax Deductions (optional)
2026 limit is $24,500 ($32,500 if 50+).
2026 limit: $4,400 single / $8,750 family.
Your Tip Income Tax Breakdown
OBBBA Tip Deduction Analysis
Side-by-Side: Without vs With OBBBA
Your OBBBA savings: $1,990
How TX Treats the OBBBA Tip Deduction
TX has no state income tax — federal savings are your full benefit.
How the OBBBA 'No Tax on Tips' Deduction Works
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, created a new above-the-line federal deduction for qualified tip income. For tax years 2025 through 2028, eligible workers in customarily-tipped occupations can deduct up to $25,000 of qualifying tips from their federal taxable income — the same cap whether you file single or married filing jointly.
Both cash tips and charged tips (credit-card tips) count, as long as you receive them in an occupation on the Treasury Department's qualifying-occupation list. The list — to be issued via regulation — is expected to cover food and beverage service (waiters, bartenders, baristas), hospitality (hotel front desk, bellhops, valets), personal services (hairstylists, barbers, nail technicians, estheticians), beauty and wellness (massage therapists), and personal transport (taxi drivers, rideshare drivers, food delivery). Mandatory service charges added to a check (auto-gratuity for parties of 6+, banquet service fees) are NOT tips for this purpose — they're wages.
The deduction phases out for high earners: it reduces by $100 for every $1,000 of MAGI above $150,000 (single) or $300,000 (MFJ). Fully phased out at $400K single / $550K MFJ. FICA still applies in full — both the employee 7.65% and the employer's 7.65% match are still owed on every tipped dollar. The deduction only reduces federal income tax, not Social Security/Medicare withholding.
Tip reporting requirements have not changed: you still report tips of $20+/month to your employer (via Form 4070) and your employer still reports them on your W-2 (Box 7 for allocated tips, Box 1 with regular wages). Starting 2025, employers also report qualifying tip totals separately so you can claim the deduction on Schedule 1-A of Form 1040. The provision sunsets after tax year 2028 unless extended.
Also work overtime hours? OBBBA stacks both deductions — See the No Tax on Overtime calculator →
Want to model 401(k) and HSA against your full salary? Open the salary calculator →
Self-employed driver, contractor, or freelancer? Tips can still qualify if you're on Treasury's list, but you'll also owe SE tax — see our freelancer calculator →
Frequently Asked Questions
What occupations qualify for the OBBBA tip deduction?
Treasury issues the official list, but it's expected to track the IRS's pre-existing list of customarily and regularly tipped occupations. Likely-included: waiters, waitresses, bartenders, baristas, hosts/hostesses, food delivery drivers, hotel front-desk staff, bellhops, valets, taxi and rideshare drivers, hairstylists, barbers, nail technicians, estheticians, massage therapists, golf caddies, casino dealers, and tour guides. Likely excluded: salaried managers (even if they receive occasional tips), professional services (lawyers, accountants), and most retail clerks. Check Treasury's published list before filing.
Do mandatory service charges (auto-gratuity) count as tips for the deduction?
No. Mandatory service charges — like the 18% auto-gratuity added to checks for parties of 6+, banquet service fees, hotel resort fees, or required cruise gratuities — are wages, not tips, under longstanding IRS rules. They do not qualify for the OBBBA tip deduction. Only tips that are voluntary (the customer decides whether and how much) and unrestricted (the customer chooses the recipient) count.
Does the deduction reduce my Social Security and Medicare taxes too?
No. The OBBBA tip deduction reduces only federal income tax. Social Security (6.2% up to the $184,500 wage base) and Medicare (1.45% on all wages, plus 0.9% over $200K/$250K) are still owed in full on every tipped dollar — both the employee share and the employer match. This matters for tipped workers because tips are subject to FICA the same as regular wages.
Are tips 'tax-free' now under OBBBA?
Not entirely. Up to $25,000 of qualified tip income can be deducted from federal taxable income. In rolling-conformity states (NY, IL, MD, OH, CO, etc.) the deduction reduces both federal AND state income tax, which this calculator now models per-state. In non-conforming states (CA, NJ, PA, MA, AR, MS) the savings are federal-only. FICA still applies in every state. The 'no tax on tips' marketing line is a simplification; real savings range from a few hundred dollars (low-bracket workers in non-conforming states) to roughly $7,000-$10,000 (high-bracket tipped workers in conforming states with $25K of qualifying tips).
Why is the cap the same $25K for single AND MFJ — isn't that a marriage penalty?
Yes, this is a marriage penalty by design. Most OBBBA caps double for MFJ (overtime $12.5K → $25K, retirement contribution doubling, etc.), but the tip cap is fixed at $25,000 per return. Two tipped spouses (e.g., a server married to a bartender) who would each get $25K filing separately still share one $25K cap on a joint return. This same structure exists in TCJA's SALT cap. Whether to file MFS to preserve two caps depends on whether the loss of MFJ tax-bracket benefits outweighs the double cap — usually it doesn't, but tipped couples earning $50K+ in tips each should run the math.
How long does the OBBBA tip deduction last?
The deduction is in effect for tax years 2025 through 2028 (four tax years). It sunsets after 2028 unless Congress extends it. The provision was bundled with the OBBBA OT deduction, the SALT cap raise, and the TCJA extension in the same act, and is structured to expire alongside related individual provisions.