No tax on overtime and tips calculator

Enter your income, your qualified tips and your overtime premium to see each new deduction and how much federal income tax it takes off for 2026.

Married people get these deductions only on a joint return.

Adjusted gross income: wages after pre tax deductions such as a 401(k), with the tips and overtime included. The phase outs read this figure.

Cash and card tips given freely in a job where tips were usual before 2025. Service charges set by the business do not count.

Only the extra half of time and a half that federal overtime law requires, not the whole overtime pay.

Count a person who is 65 by 31 December 2026.

Federal income tax saved

0.00

Tax without the new deductions less tax with them. Social Security and Medicare stay the same.

Total of the new deductions
0.00
Tips deduction
0.00
Overtime deduction
0.00
Deduction for seniors
0.00
Federal income tax without them
0.00
Federal income tax with them
0.00
Taxable income with them
0.00

Your data stays in your browser. Nothing is uploaded.

For information only, not financial, tax or legal advice.

Last updated . Method checked . Rates checked 2 November 2026. Methodology

The One Big Beautiful Bill Act added three federal deductions for tax years 2025 to 2028: one for qualified tips, one for the premium part of overtime pay and one for people aged 65 or over. This calculator applies each one with its cap and its income phase out for tax year 2026, then works out federal income tax twice on the 2026 rate schedule of your filing status, once without the deductions and once with them. The difference is the tax they save. Despite the popular name, tips and overtime are not tax free: they still pay Social Security and Medicare, and only the federal income tax on them can fall. Married couples need a joint return for any of the three. The figures are a yearly estimate for the return, and every sum runs inside this browser tab.

How to use the No Tax on Overtime and Tips Calculator

  1. Pick your filing status for 2026.
  2. Enter your income for the year with the tips and the overtime included, after pre tax deductions. Tip: For most wage earners this is the wages box of the W-2 plus any tips reported separately.
  3. Enter the qualified tips and only the premium half of your overtime pay.
  4. Choose how many people on the return are 65 or over.
  5. Read the tax saved and compare the two columns of the table, then copy them as CSV.

Worked example

A single server with tips and some overtime, no one 65 or over. All figures are USD for tax year 2026.

InputValue
Filing statusSingle
Income for 2026 before these deductionsUSD 72,000.00
Qualified tipsUSD 6,000.00
Qualified overtime premiumUSD 5,000.00
 
Income is under $150,000, so nothing is phased out: tips deduction USD 6,000.00, overtime deduction USD 5,000.00, together USD 11,000.00
Without them: taxable income = 72,000 - 16,100 = USD 55,900.00
Tax without = 5,800 + 22% x (55,900 - 50,400) = 5,800 + 1,210 = USD 7,010.00
With them: taxable income = 55,900 - 11,000 = USD 44,900.00
Tax with = 1,240 + 12% x (44,900 - 12,400) = 1,240 + 3,900 = USD 5,140.00
Tax saved = 7,010 - 5,140 = USD 1,870.00, the same as 22% x 5,500 + 12% x 5,500
Federal income tax saved
USD 1,870.00
Total of the new deductions
USD 11,000.00
Federal income tax without them
USD 7,010.00
Federal income tax with them
USD 5,140.00
Taxable income with them
USD 44,900.00

Half of the USD 11,000.00 came off income taxed at 22% and half off income taxed at 12%, which is why the saving is not one flat rate. Social Security and Medicare on the USD 72,000.00 are the same either way.

How the tips, overtime and seniors deductions are worked out

Tips deduction = min(qualified tips, cap) - 100 x whole thousands of income over the start
Overtime deduction = min(overtime premium, cap) - 100 x whole thousands of income over the start
Seniors deduction = each person 65 or over x (6,000 - 6% x income over the start)
Tax saved = tax on (income - standard deduction) - tax on (income - standard deduction - the three deductions)

The three deductions come from Public Law 119-21, sections 70201, 70202 and 70103, which added sections 224 and 225 to the Internal Revenue Code and a seniors amount to section 151. They apply to tax years 2025 through 2028. The calculator follows the lines of Schedule 1-A, the form the IRS uses for them, and none of the three can go below zero.

Qualified tips are capped at $25,000 a return, the same for a married couple filing jointly. The overtime premium is capped at $12,500, or $25,000 on a joint return. Each is then cut by $100 for every whole $1,000 of modified adjusted gross income above $150,000 ($300,000 joint). Schedule 1-A rounds the excess down to whole thousands, so the deduction falls in steps.

Each person aged 65 or over by the end of the year adds $6,000, less 6% of income above $75,000 ($150,000 joint), worked out for each person. Two people count only on a joint return. Being 65 also raises the standard deduction by $2,050 for an unmarried filer or $1,650 for each married person, and the tool keeps that extra amount in both columns, so it does not count toward the saving.

Federal income tax is the 2026 rate schedule of the filing status from Revenue Procedure 2025-32 applied to taxable income, worked to the cent. The paycheck calculator on this site uses the same code, so both tools give the same tax for the same figures.

Social Security and Medicare are left out of the comparison on purpose. Publication 15 says tips and overtime are still subject to both, so the saving here is federal income tax only. The car loan interest deduction from the same law is not modeled, and neither are state income taxes, credits or itemized deductions.

Frequently asked questions

Is overtime pay now tax free?

No. For tax years 2025 to 2028 the premium part of overtime, the half in time and a half, can be deducted from income for federal income tax, up to $12,500 a year or $25,000 on a joint return. The straight time part stays taxable. Social Security and Medicare are still taken from all overtime pay, and state income tax follows each state's own rules.

Which overtime counts as qualified?

Only overtime pay that section 7 of the Fair Labor Standards Act requires, and only the part of it above the regular rate, which is the extra half in time and a half. At $30 an hour an overtime hour pays $45, and $15 of that counts. Amounts already counted as qualified tips do not count again. The IRS questions and answers on the overtime deduction, linked under Sources, set this out.

Which tips count for the deduction?

Cash and card tips, including tips shared with coworkers, in a job where people customarily received tips on or before 31 December 2024. The customer must pay them freely and decide the amount, so a service charge the business adds is not a tip. Tips earned in a specified service trade or business, such as law, health or financial services, do not qualify.

When do the deductions start to shrink?

The tips and overtime deductions each fall by $100 for every full $1,000 of modified adjusted gross income over $150,000, or $300,000 on a joint return. The seniors deduction of $6,000 a person falls by 6% of income over $75,000, or $150,000 joint. A single filer with $162,500 of income and $30,000 of tips keeps $23,800.

Can I take these deductions without itemizing?

Yes. The IRS says all of them are open to people who take the standard deduction as well as to those who itemize, so they come on top of the standard deduction. They lower taxable income, not adjusted gross income. A Social Security number is needed on the return, and a married person who files separately cannot claim any of the three.

Guides for this tool

Related tools

Sources