OBBBA 2026 · no tax on tips · no tax on overtime
No Tax on Tips & Overtime — how much do you save?
How much does the new tip and overtime tax break save me?
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, lets millions of American workers deduct tips and overtime pay from federal taxable income for the first time. If you work in a tipped role — restaurant, bar, hotel, salon, gig work — or earn hourly overtime, this could be a real reduction in your federal tax bill. This calculator shows you exactly how much, verified against the official IRS figures.
Verified 12 August 2026
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Information, not tax advice. Based on verified 2026 OBBBA provisions per IRS.gov. Tips deduction: up to $25,000, phases out above $150,000 MAGI (single) / $300,000 (MFJ). Overtime deduction: up to $12,500 single ($25,000 MFJ), same phaseout. Both expire December 31, 2028. Social Security and Medicare (FICA) still apply to all wages — these deductions reduce federal income tax only. Verified 12 August 2026. How we calculate.
Who qualifies for the no-tax-on-tips deduction?
The tip deduction applies to employees who work in occupations where tipping is "customary and usual" — primarily food and beverage service, hospitality, cosmetology, barbering, nail services, personal training, taxi and rideshare driving, and other service roles. Self-employed individuals who receive tips may also qualify. The IRS has indicated it will publish a formal list of qualifying occupations. Notably, tips must be voluntary — mandatory service charges (auto-gratuities) don't count.
The deduction is above-the-line, which means you take it regardless of whether you itemize or take the standard deduction. Your employer doesn't need to do anything special on your 2025 W-2 — you claim it when you file. From 2026 onward, your employer reports qualifying overtime separately in Box 12 with code TT.
The catch: FICA still applies
This is the part that surprises most people. The OBBBA deduction reduces your federal income tax, but Social Security (6.2%) and Medicare (1.45%) — collectively called FICA — still apply to all your wages including tips and overtime. So the saving is real, but it's not as large as "no tax" might imply. A tipped worker in the 22% bracket saves 22 cents per dollar of qualifying tips, not 29.65 cents. This calculator shows the honest saving.
When does it expire?
Both provisions are scheduled to expire after December 31, 2028, unless Congress extends them. This is worth knowing if you're making any multi-year financial plans. Congress may choose to make them permanent, but as of now, plan for them to last through your 2028 tax return.