How this calculator works
For tax years 2025 to 2028, workers can deduct up to $25,000 of qualified tips and up to $12,500 of qualified overtime ($25,000 on a joint return). Both deductions are taken on Schedule 1-A, whether you itemize or take the standard deduction. If you are married, you must file jointly to claim them.
Qualified overtime is only the extra part of overtime pay required by the Fair Labor Standards Act, usually the “half” in time-and-a-half. If you earn $25 an hour and are paid $37.50 for an overtime hour, $12.50 of it counts. In “from hours” mode the calculator works this out as your regular rate × 0.5 × overtime hours × weeks.
Qualified tips are voluntary cash or card tips received in an occupation the IRS lists as customarily receiving tips, including tips shared through a tip pool. Mandatory service charges and automatic gratuities are not tips.
Each deduction shrinks by $100 for every $1,000 of modified adjusted gross income above $150,000 ($300,000 for joint filers). For a single filer, the full $12,500 overtime deduction is gone at $275,000.
The saving is the difference between your 2026 federal income tax with and without the deductions, using the standard deduction ($16,100 single, $32,200 joint) and the 2026 brackets. Social Security, Medicare and most state income taxes are not affected.
Worked example
Single server: $60,000 income including $8,000 of tips, plus 5 overtime hours a week at $25 an hour
- Qualified overtime: $25 × 0.5 = $12.50 an hour × 5 hours × 50 weeks = $3,125.
- Both amounts are under their caps and income is under $150,000, so the deductions are $8,000 and $3,125.
- Taxable income falls from $43,900 ($60,000 − $16,100) to $32,775.
- Federal tax falls from $5,020 to $3,685: a saving of $1,335, all of it in the 12% bracket.
Questions people ask
Do I still pay Social Security and Medicare on tips and overtime?
Yes. These are income tax deductions only. Your employer still withholds Social Security and Medicare on all of your tips and overtime pay.
Does my state tax tips and overtime?
It depends on the state. Some states follow the new federal deductions and some don’t, so state income tax on tips and overtime may be unchanged. Check your state revenue department.
Is all of my overtime pay deductible?
No. Only the premium required by federal law, usually the extra half of time-and-a-half, counts. Overtime paid only because of a state law or union contract, and any premium above time-and-a-half, generally doesn’t count.
Where do I find my qualified overtime amount?
From 2026, employers report qualified overtime on Form W-2 in box 12 with code TT. For 2025, when separate reporting wasn’t required, the IRS allows you to work it out from your pay records.
Sources
Last reviewed October 2, 2026