Estimate only. This calculator provides a simplified estimate. Consult a tax professional for advice specific to your situation. FICA taxes (Social Security + Medicare) still apply to tips.
Brackets are by taxable income, after deductions. 2026 figures from the IRS.
Only matters above $150,000 ($300,000 joint). For most workers, MAGI is the AGI on your return.
How the deduction works
The tax law signed in July 2025 created a federal deduction for tips. For tax years 2025 through 2028, you can deduct up to $25,000 of qualified tips a year, whether you itemize or take the standard deduction. Your tips are still reported as income; the deduction then lowers your taxable income.
The income limit is a slope, not a cliff. The deduction is reduced by $100 for every $1,000 of modified adjusted gross income above $150,000, or $300,000 on a joint return. A single filer with $25,000 of tips and $200,000 of income can still deduct $20,000. The full $25,000 deduction is gone only at $400,000 ($550,000 joint).
It covers federal income tax only. Social Security (6.2%) and Medicare (1.45%) still apply to every tip, and each state decides whether its own income tax follows the federal deduction.
Who qualifies?
The test is your occupation, not your income level. The IRS publishes a list of occupations that customarily and regularly received tips on or before December 31, 2024. It includes, among many others:
- Restaurant servers, bartenders and other food and beverage workers
- Hair stylists, barbers, nail technicians and estheticians
- Tattoo artists and body piercers
- Massage therapists and spa workers
- Hotel housekeepers, bellhops, concierges and valets
- Delivery drivers who receive tips
You also need a valid Social Security number, and if you are married you must file jointly. Self-employed workers can deduct tips only up to their net income from the business where they earned them. Workers in certain professional service businesses (specified service trades) are excluded.
How to claim it
Nothing changes during the year. Keep reporting cash tips of $20 or more a month to your employer; Social Security and Medicare are withheld as before.
You claim the deduction on your federal return. Only tips that appear on your W-2, a 1099 or another required statement, or that you report yourself on Form 4137, count. Tax software and preparers handle the calculation; the figure above is an estimate.
Sources: 26 U.S.C. §224; IRS, "Working Families Tax Cuts: Tax deductions for working Americans and seniors"; IRS tax year 2026 inflation adjustments. Checked October 26, 2026.