How the deduction works
- Qualified tips: cash and card tips customers choose to give you, in a job on the IRS list of tipped occupations, that you report to your employer or on your return.
- The limit: up to $25,000 a year per return, reduced by $100 for every $1,000 your income goes over $150,000 ($300,000 if filing jointly).
- The saving: the deduction comes off your taxable income, so it saves tax at your own rate. At the 12% rate, $10,000 of deductible tips saves $1,200 of federal income tax.
The calculator works out your federal and state tax with and without the deduction, so the saving includes any effect on your credits.
What it saves
For a single filer with $25,000 of other pay, in 2026:
| Tips | Federal tax saved | Social Security and Medicare still paid |
|---|---|---|
| $5,000 | $530 | $383 |
| $10,000 | $1,130 | $765 |
| $15,000 | $1,730 | $1,148 |
| $20,000 | $2,330 | $1,530 |
| $25,000 | $2,930 | $1,913 |
| $30,000 | $3,000 | $2,295 |
The deduction lowers income tax only. Social Security and Medicare, 7.65% between them, still come out of every tip.
How your income changes it
$10,000 of tips, for a single filer with other pay of:
| Other pay | Total income | Federal tax saved |
|---|---|---|
| $15,000 | $25,000 | $890 |
| $30,000 | $40,000 | $1,200 |
| $50,000 | $60,000 | $1,200 |
| $100,000 | $110,000 | $2,200 |
| $150,000 | $160,000 | $2,160 |
| $200,000 | $210,000 | $960 |
The saving follows your tax bracket: 12% of the deduction at $40,000 to $60,000 of income, 22% at $110,000. Above $150,000, the deduction shrinks by $100 for every $1,000, so at $210,000 only $4,000 of the $10,000 is deductible. On a low income, the standard deduction already covers much of your pay, so there’s less tax to save.
Who can claim it
- You need a Social Security number that’s valid for work.
- If you’re married, you must file a joint return.
- It applies to the tax years 2025 to 2028.
How to claim it
You claim it on Schedule 1-A with your Form 1040. From 2026, your W-2 shows your cash tips in box 12 with code TP, and your occupation’s code in box 14b. If box 14b only shows code 000, your tips aren’t from a listed occupation and don’t qualify.
Does my state allow it?
The deduction is federal, and states decide for themselves.
In 2026, these states with an income tax also let you deduct qualified tips: Arizona, Colorado, District of Columbia, Georgia (up to $1,750), Hawaii, Idaho, Indiana, Iowa, Michigan, Montana, New York, North Dakota and Oregon. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don’t tax wages at all. In the other states, tips are still taxed by the state.
The calculator follows your state’s rules, and our paycheck calculator shows your tax on every paycheck.