How much of your tips are tax-free?

Not exactly — the "no tax on tips" deduction (26 U.S.C. §224, from the One Big Beautiful Bill Act) is a federal income-tax deduction, not an exemption. It only covers cash tips from an occupation on Treasury's fixed list, capped at $25,000 regardless of filing status, and only applies for tax years 2025 through 2028. Social Security and Medicare are still withheld on every dollar of tips as before.

Treasury Decision 10044 (the final regulation) defines the fixed list of occupations eligible for the tips deduction — bartenders, wait staff, drivers, and others, grouped into 8 categories covering roughly 70 specific job codes. A tip is only deductible if your occupation is on this list.

Treasury's list is organized by broad category — beverage and food service, entertainment and events, hospitality and guest services, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery — with specific job titles under each. This calculator does not check your specific occupation against the list; it estimates the deduction assuming the tips you enter qualify.

26 U.S.C. §224(d)(2) excludes tips earned in a specified service trade or business (SSTB) — the same category used elsewhere in the tax code for fields like law, health, and consulting. For an employee, this turns on your employer's business, not your own job duties, so the same occupation can qualify at one employer and not another.

No — unlike the overtime deduction, which splits its cap by filing status, the tips deduction caps at a flat $25,000 for every filing status under 26 U.S.C. §224(b)(1). Married filing separately is the one exception: §224(f) disqualifies a separate return from the deduction entirely, so its cap is $0, not a smaller one.

Only with an extra limitation. 26 U.S.C. §224(c) lets self-employed tips count toward the deduction only once your business's gross income exceeds its allocable deductions for the year — a test this calculator does not enforce. Employee tips have no such requirement.

On a $45,000 salary with $8,000 in qualified tips, the full amount is deducted (well under the $25,000 cap and the income phase-out threshold), estimated to save about $960 in federal income tax for this example.

The maximum deduction shrinks by 10% of modified adjusted gross income (MAGI) over $150,000, the same threshold and rate as the overtime deduction. At $150,000 more of MAGI above that threshold, the $25,000 cap phases fully to zero.