No Tax on Tips and Overtime Calculator
See what the new federal deductions for tips, overtime, seniors and car loan interest actually save you on your 2026 tax return, after the income limits, the phase-outs and your other credits, plus whether your state gives you the same break.
Since 2025, four new deductions can lower your federal income tax: one for tips, one for overtime, one for people 65 and older and one for interest on a new-car loan. They are not exemptions. Tips and overtime are still income, still show up on your W-2 and still pay Social Security and Medicare tax. What changes is that part of them comes off your taxable income, so the saving is your tax rate on that part, and for many workers it is smaller than the headlines suggest. Enter your numbers to see yours.
01Your Numbers
02What Each Deduction Is Worth to You
The deduction is the amount that comes off your taxable income after the cap and the income phase-out. The tax saved is what that is worth at your tax rates, after your standard deduction and child tax credit. When more than one deduction applies, the saving is shared out in proportion to each one's size.
| Deduction | You entered | After cap | Phase-out | Deduction | Federal tax saved | State tax saved |
|---|
03Your Schedule 1-A, Part by Part
You claim all four deductions on the new Schedule 1-A of Form 1040. This is what yours would show, part by part. Your tax software fills it in; the point here is to see where the caps and phase-outs bite.
| Line | Amount |
|---|
04Where the Savings Run Out
The same tips, overtime, age and car loan you entered, at every income from $0 to $400,000. At low incomes the standard deduction and credits already wipe out the tax, so there is little to save; in the middle the saving grows with your tax rate; above the thresholds the deductions shrink away.
05Does Your State Follow?
The federal deductions do not change your state income tax unless your state adopts them. For 2026 most states still tax tips and overtime in full. This is the picture as of the date at the top of the page; several states were still deciding, so check with your state's revenue department before you file.
| Treatment for 2026 | States |
|---|---|
| Tips and overtime both deductible | Arizona, Idaho, Indiana, Iowa, Michigan, Montana, North Dakota, Oregon |
| Tips only | Colorado, Hawaii, New York (Colorado decoupled from the overtime deduction) |
| Smaller state versions | Alabama (up to $1,000 of overtime premium; tips taxed), Georgia (up to $1,750 of tips and $1,750 of overtime) |
| No state tax on wages | Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming |
| Not confirmed | District of Columbia, New Mexico |
| Still taxed in full | Arkansas, California, Connecticut, Delaware, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin |
Where each state says so
| State | What is deductible | Tax years | How | Source |
|---|---|---|---|---|
| Arizona | Tips and overtime | 2025 on | Subtractions in HB 4168, signed June 13, 2026 (Laws 2026, chapter 140) | Arizona Legislature fact sheet, HB 4168 as enacted |
| Idaho | Tips and overtime | 2025 on | HB 559 moved Idaho's federal tax code date forward, signed February 10, 2026 | Idaho Legislature, HB 559 (2026) |
| Indiana | Tips and overtime | 2026 only | State deductions equal to the federal amounts (SEA 243, 2026) | Indiana Department of Revenue, Information Bulletin 128 |
| Iowa | Tips and overtime | 2025 and 2026 | Iowa starts from federal taxable income and follows the federal code as it changes | Iowa Department of Revenue, One Big Beautiful Bill Act and withholding |
| Michigan | Tips and overtime | 2026 to 2028 | Deductions equal to the federal amounts (2025 Public Act 24); not available for 2025 | Michigan Treasury notice, January 6, 2026 |
| Montana | Tips and overtime | While the federal deductions last | Montana starts from federal taxable income, so the federal deductions carry through | Montana Department of Revenue, tax simplification |
| North Dakota | Tips and overtime | While the federal deductions last | North Dakota starts from federal taxable income, so the federal deductions carry through | North Dakota Office of State Tax Commissioner, income tax |
| Oregon | Tips and overtime | 2025 on | SB 1507 (2026, chapter 142) cut other federal breaks but kept these two | Oregon Legislature, SB 1507 (2026) |
| Colorado | Tips only | 2026 | Starts from federal taxable income, but overtime deducted federally must be added back | Colorado Department of Revenue, Individual Income Tax Guide |
| Hawaii | Tips only | 2026 on | Act 35 (HB 2329, 2026) adopts the federal tips deduction and not the overtime one | Hawaii Department of Taxation, Announcement 2026-06 |
| New York | Tips only, up to $25,000 | 2026 on | Subtraction for tips deductible federally, in the 2026-27 budget (Laws of 2026, chapter 59, Part B, signed May 28, 2026) | Hodgson Russ (law firm) summary of the enacted budget; no state guidance published yet |
| Alabama | Overtime premium up to $1,000; tips taxed | 2026 to 2028 | Act 2026-604 | Alabama Department of Revenue, overtime premium deduction |
| Georgia | Up to $1,750 of tips and $1,750 of overtime | 2026 | Georgia's own exclusions in place of the federal deductions | Georgia Department of Revenue, important tax updates |
| District of Columbia | Not confirmed | - | Emergency legislation (D.C. Act 26-416) allowed both for years after 2025; emergency acts last 90 days and the permanent rule was not confirmed | D.C. Office of Tax and Revenue |
| New Mexico | Not confirmed | - | No state guidance found for 2026 | New Mexico Taxation and Revenue Department |
The calculator's state figure applies your state's 2026 brackets to the part of the federal tips and overtime deductions your state allows. It leaves out state versions of the senior and car loan deductions, local income taxes and state credits.
06The Rules in One Place
| Tips | Overtime | Seniors | Car loan interest | |
|---|---|---|---|---|
| Most you can deduct | $25,000 a return | $12,500; $25,000 joint | $6,000 per person 65+ | $10,000 a return |
| Starts shrinking above | $150,000 of income; $300,000 joint | $150,000; $300,000 joint | $75,000; $150,000 joint | $100,000; $200,000 joint |
| How fast | $100 for every $1,000 over | $100 for every $1,000 over | 6% of the income over, per person | $200 for every $1,000 over (rounded up) |
| What counts | Voluntary cash, card and check tips in a listed tipped job, reported on a W-2, 1099 or Form 4137 | Only the federal overtime premium: the extra half for hours over 40 a week under the Fair Labor Standards Act | Anyone 65 or older by December 31 | Interest on a loan after 2024 for a new, U.S.-assembled vehicle for personal use; VIN on the return |
| What does not | Automatic service charges, tips in specified service businesses (for the self-employed), unlisted jobs | Straight-time pay; overtime required only by state law or a contract | - | Used cars, leases, business vehicles |
| Itemize or not | All four can be taken whether you itemize or take the standard deduction. A Social Security number is required, and married couples must file jointly for the tips, overtime and senior deductions. | |||
| Years | Tax years 2025 through 2028. They reduce federal income tax only, not Social Security or Medicare tax. | |||
07How the Calculator Works and What It Leaves Out
We start from your total income, which for most people is also the modified adjusted gross income these phase-outs use. The new deductions do not reduce that income; they come off afterward, like the standard deduction. We work out your 2026 federal income tax twice, with and without the deductions, using the IRS's 2026 brackets and standard deductions (with the extra standard deduction for people 65 and older) and the $2,200 child tax credit, including its refundable part (15% of your pay from work above $2,500, up to $1,700 a child). Married filing separately uses its own brackets, which reach 37% at $384,350 of taxable income. The difference is the federal saving. The state saving applies your state's 2026 brackets to the part of the tips and overtime deductions your state allows.
We leave out the earned income credit and other credits, capital gains rates, self-employment tax, the cap that limits a self-employed person's tips deduction to the business's net income, and foreign income that has to be added back to income for these limits. If your situation includes any of those, use this as an estimate and let your tax software or preparer do the final figure. This page is for information, not tax advice.
08Frequently Asked Questions
Who qualifies for no tax on tips?
Employees and self-employed people in an occupation on the IRS list of jobs that customarily received tips on or before December 31, 2024 (servers, bartenders, hairdressers, delivery drivers, golf caddies and about 70 more). The tips must be voluntary, paid in cash, by card or by check, and reported on a W-2, a 1099 or Form 4137. Automatic service charges do not count. You need a valid Social Security number and, if you are married, you must file a joint return.
How much overtime is tax-free?
Only the extra half in time-and-a-half that federal law (the Fair Labor Standards Act) requires for hours over 40 a week, not your whole overtime check. If you earn $30 an hour and get $45 for overtime, $15 of each overtime hour counts. The deduction is capped at $12,500, or $25,000 on a joint return. Overtime paid only because of a state law or a union contract, and double-time beyond the federal half, does not count.
Do I still pay Social Security and Medicare tax on tips and overtime?
Yes. The deductions only cut federal income tax. Social Security and Medicare still come out of your tips and overtime. For employees that is 7.65% below the Social Security wage limit ($184,500 in 2026); above it only Medicare applies (1.45%, plus 0.9% on wages over $200,000, or $250,000 on a joint return). Most states still tax tips and overtime too.
What is the senior deduction?
An extra $6,000 for each person 65 or older by the end of the year, on top of the existing extra standard deduction for seniors. It shrinks by 6% of income above $75,000, or $150,000 on a joint return, and you can take it whether or not you itemize. It runs from 2025 through 2028.
Which car loans qualify?
A loan taken out after December 31, 2024 to buy a new car, SUV, pickup, van or motorcycle for personal use, with final assembly in the United States (it is on the window sticker and in the vehicle identification number). Used cars and leases do not count. Up to $10,000 of interest a year, shrinking above $100,000 of income ($200,000 joint), and you must put the VIN on your return.
Why does the calculator show such a small saving?
Because a deduction is only worth your tax rate on it, and many tipped workers owe little or no federal income tax to begin with. The Yale Budget Lab found that 37% of tipped workers had incomes too low to owe any federal income tax in 2022. If the standard deduction and child tax credit already wipe out your tax, the new deductions add little or nothing.
Does my state tax tips and overtime?
Most states still do. For 2026, Arizona, Idaho, Indiana, Iowa, Michigan, Montana, North Dakota and Oregon follow both deductions, Colorado, Hawaii and New York follow the tips deduction only, and Alabama and Georgia have smaller versions of their own. Nine states have no tax on wages at all. Check with your state before you file; these rules are still changing.
When do these deductions end?
After the 2028 tax year, unless Congress extends them. They apply to 2025, 2026, 2027 and 2028 returns.
09Sources
- IRS, One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors (FS-2025-03, July 2025)
- IRS, Schedule 1-A (Form 1040), Additional Deductions, and its instructions (phase-out calculations)
- Treasury and IRS final regulations on qualified tips, TD 10044, April 13, 2026, as summarized by RSM, April 15, 2026
- IRS Revenue Procedure 2025-32: 2026 brackets, standard deductions and the extra standard deduction for people 65 and older
- TaxPayers.net state tips and overtime tracker (status October 18, 2026) and the Tax Foundation on state conformity
- Each state's source is linked in the state table above: the state's own revenue department or legislature, except New York, where the link is a law firm's summary of the enacted budget until the state publishes guidance
- Social Security Administration, contribution and benefit base ($184,500 for 2026)
- Yale Budget Lab, background on tipped workers, June 24, 2024
More tax tools: the Paycheck Calculator, the Capital Gains Tax Calculator and every Financial Tool.
Corrections and Updates
| Date | What changed |
|---|---|
| November 12, 2026 | An entered 0 dollars of pay from work is now treated as zero earned income (only a blank box means all income is from work), which removes a refundable child tax credit the calculator wrongly showed in that case; joint filers now get a general payroll tax explanation because the Social Security wage limit applies to each spouse separately. |
| November 12, 2026 | Payroll tax on tips and overtime now stops Social Security at the 2026 wage limit of 184,500 dollars and adds the 0.9% additional Medicare tax; the refundable child tax credit now uses pay from work only; married filing separately now uses its own brackets (37% from 384,350 dollars); added an FLSA overtime check and official sources for each state. |
Every correction to a published figure on this site is logged on Sources and Methods.
Cite This Page
This page is free to cite and link. Its figures come from IRS FS-2025-03 and Schedule 1-A (deduction rules), Treasury final regulations TD 10044 (qualified tips), IRS Revenue Procedure 2025-32 (2026 brackets); state treatment from the TaxPayers.net tracker and the Tax Foundation and are kept current, so please include the date you accessed it.
| Format | Citation | Copy |
|---|---|---|
| Plain | Dave Manuel, “No Tax on Tips and Overtime Calculator: What the New Deductions Save You in 2026,” DaveManuel.com, https://www.davemanuel.com/no-tax-on-tips-and-overtime-calculator.php (accessed November 12, 2026). | Copy |
| APA | Manuel, D. (2026). No Tax on Tips and Overtime Calculator: What the New Deductions Save You in 2026. DaveManuel.com. Retrieved November 12, 2026, from https://www.davemanuel.com/no-tax-on-tips-and-overtime-calculator.php | Copy |
| Chicago | Manuel, Dave. “No Tax on Tips and Overtime Calculator: What the New Deductions Save You in 2026.” DaveManuel.com. Accessed November 12, 2026. https://www.davemanuel.com/no-tax-on-tips-and-overtime-calculator.php. | Copy |
| Wikipedia | {{cite web |url=https://www.davemanuel.com/no-tax-on-tips-and-overtime-calculator.php |title=No Tax on Tips and Overtime Calculator: What the New Deductions Save You in 2026 |last=Manuel |first=Dave |website=DaveManuel.com |access-date=2026-11-12}} | Copy |
| Link (HTML) | <a href="https://www.davemanuel.com/no-tax-on-tips-and-overtime-calculator.php">No Tax on Tips and Overtime Calculator: What the New Deductions Save You in 2026 (DaveManuel.com)</a> | Copy |
Source data: IRS FS-2025-03 and Schedule 1-A (deduction rules), Treasury final regulations TD 10044 (qualified tips), IRS Revenue Procedure 2025-32 (2026 brackets); state treatment from the TaxPayers.net tracker and the Tax Foundation. Updates: As the rules change. How we build our data pages.