How to use this calculator
- Choose the tax year and the filing status you will use.
- Enter your wages from box 1 of Form W-2, with your tips included, and the tips you reported to your employer: for 2026, box 12 with code TP; for 2025, box 7 or your monthly tip reports. On a joint return, add your spouse's.
- If you had tips you didn't report to your employer, or tips in your own business (a rideshare, delivery, salon chair or other work on a 1099), turn on that option and enter them.
- Enter your children under 17 for the child tax credit.
- Under More options, tick the age and blindness boxes that apply, and add other income, itemized deductions and any overtime or car loan interest deductions you take.
The numbers already filled in are an example. Replace them with your own. The deduction lowers the tax on your return; your paychecks don't change unless you give your employer a new Form W-4.
Which tips count
A tip counts when a customer chooses to pay it, in money, in an occupation on the IRS list of occupations that customarily received tips before 2025. The list has eight groups, each occupation with a Treasury Tipped Occupation Code:
- Beverage and food service: bartenders, wait staff, chefs and cooks, dishwashers, host staff, bakers.
- Entertainment and events: gambling dealers, dancers, musicians and singers, digital content creators.
- Hospitality and guest services: baggage porters and bellhops, concierges, housekeepers.
- Home services: home repair and landscaping workers, home cleaners, locksmiths, roadside assistance.
- Personal services: personal care workers, event planners, event photographers, pet caretakers, tutors, nannies.
- Personal appearance and wellness: massage therapists, barbers and hairstylists, fitness trainers, tattoo artists.
- Recreation and instruction: golf caddies, tour guides, sports and recreation instructors.
- Transportation and delivery: parking attendants, taxi and rideshare drivers, delivery workers, movers.
The full list is at IRS.gov/TippedOccupations. Some examples of what counts and what doesn't:
- A tip the customer picks on the card reader, where no tip was an option: counts.
- Your share of a tip pool: counts. A manager's share of a pool doesn't, though a tip a manager gets directly while waiting tables does.
- An 18% charge added to every large party's bill: doesn't count, even if the staff get it.
- A delivery or service fee: doesn't count. Tips paid in tickets, meals or crypto: don't count.
- Tips you didn't report to your employer but report on Form 4137: count.
- For a self-employed worker, tips must appear on a Form 1099; cash no 1099 shows doesn't count.
The law also excludes tips in certain professional-service businesses. Until final rules on that part arrive, the IRS treats anyone working in a listed occupation as outside it.
How it's calculated
The tips deduction comes from section 224 of the tax code and Part II of Schedule 1-A. The calculator adds up your qualified tips, caps them, reduces them for high incomes, and figures your federal income tax twice: once without the deduction and once with it. The difference is what the deduction is worth.
An example
Say you file single for 2026, your wages are $45,000, and $12,000 of that was tips you reported. That is under the $25,000 cap, and your income is under the $150,000 where the phase-out starts, so your deduction is $12,000. Without it, your taxable income is $28,900 and your federal income tax is $3,223. With it, your taxable income is $16,900 and your tax is $1,783. The deduction is worth $1,440 to you. Social Security and Medicare tax on the tips, about $918, stays the same.
The cap and the phase-out
The deduction is capped at $25,000 for every filing status; a married couple filing jointly shares one cap. It is then reduced by $100 for every full $1,000 of modified adjusted gross income over $150,000 ($300,000 on a joint return), and a part of $1,000 is dropped. A single filer with $180,500 of income and $25,000 of tips is $30,500 over, which counts as 30 whole thousands, so $3,000 comes off and the deduction is $22,000. It is gone once income reaches $400,000 ($550,000 on a joint return). The deduction is not available on a separate return by a married person.
Why the child tax credit matters
The deduction lowers your tax, but if the child tax credit already covers most of that tax, a lower tax may not help much. The credit's unused part can be paid to you as the additional child tax credit, up to $1,700 a child and 15% of your earnings over $2,500. Take a married couple with two children and $50,000 of wages, $12,000 of it tips. The deduction lowers their income tax by $1,200 before credits. After credits, their tax is $0 either way, and their refundable credit rises by $783, so the deduction is worth $783 to them, not $1,200.
Tips in your own business
If you earn tips in your own business, you can deduct them only up to the business's net income: its net profit less the deductible half of self-employment tax and any self-employed health insurance and retirement contributions. Tips you could deduct also aren't qualified business income, whether or not you claim the deduction, so the qualified business income deduction is figured without them on both returns. Take a rideshare driver filing single with $30,000 of net profit, $6,000 of it tips, and no other income. Their qualified business income deduction is capped at 20% of their taxable income, so the tips deduction lowers it by $1,200. Their taxable income falls by $4,800, not $6,000, and the deduction is worth $480. The self-employment tax, $4,239, is the same either way.
Assumptions and limits
- The tips you enter are qualified tips: voluntary cash or card tips in an occupation on the IRS list, not service charges or automatic gratuities, and reported on a W-2, a 1099 or Form 4137. The calculator doesn't decide whether a tip qualifies.
- It figures federal income tax, the child tax credit, the credit for other dependents and the additional child tax credit. It does not figure the earned income credit (the deduction doesn't change it), the child and dependent care credit, education credits, the saver's credit or the premium tax credit. Those other credits can lower the tax the child credit is limited by, which can make the deduction worth less than shown. With three or more children, when the form sends you to a second way of figuring the refundable credit (Schedule 8812, Part II-B), the calculator uses the first and says so.
- It does not include state income tax, the alternative minimum tax, the net investment income tax, the Additional Medicare Tax, student loan interest or the 2026 charitable deduction for people who don't itemize. Modified adjusted gross income is your adjusted gross income: the Puerto Rico and foreign income exclusions are not included.
- For 2026 on, it does not apply the new limit on itemized deductions for people in the 37% bracket. That limit can change the tax shown, but not what the tips deduction is worth: at those incomes the deduction has already phased out to $0.
- If you're married filing separately and receive Social Security, the taxable part of your benefits is figured as if you lived with your spouse at some time during the year, which makes more of it taxable. (This doesn't change the tips deduction, which is $0 on a separate return.)
- For tips in your own business it assumes one business run by one person, with a net profit of at least $0, no farm income and no optional methods on Schedule SE. For the qualified business income deduction it assumes no employees paid W-2 wages, no business property, work you take part in, no REIT dividends or publicly traded partnership income, and no loss carried in from an earlier year. Above the income threshold it also assumes a business that is not a specified service business, and says so when that matters. Your box 1 wages stand in for your Social Security wages on Schedule SE, and on a joint return unreported tips are treated as not affecting the self-employed spouse's Social Security wage base.
- Unreported tips are assumed to be at least $20 a month with one employer, so the Social Security and Medicare figure on them can be slightly high. Allocated tips in W-2 box 8 count only to the extent they are tips you actually received and report on Form 4137.
- Below $100,000 of taxable income the tax comes from the IRS Tax Table, and at $100,000 or more from the Tax Computation Worksheet. For a year whose Tax Table is not printed yet, the calculator builds it the way the IRS does, from the middle of each row.
- The deduction lowers the tax on your return. It doesn't change what your employer withholds unless you give them a new Form W-4; the IRS Tax Withholding Estimator can help you fill one in.
- The deduction runs for 2025 through 2028 only. The person who received the tips needs a Social Security number valid for work.
Input field details
What to enter in each box, where to find the number, and how this calculator treats it. When two calculators give different answers from the same numbers, it's usually because they handle one of these differently.
Filing status
The status you will file under for the tax year.
How this tool treats itThe deduction is capped at $25,000 for the whole return, whatever your status: a married couple filing jointly shares one cap. It starts to shrink above $150,000 of modified adjusted gross income, or $300,000 on a joint return; head of household and qualifying surviving spouse use $150,000. Married people filing separately cannot take the deduction at all; to see it, choose married filing jointly and enter both spouses’ wages and income.
Wages, including reported tips
Your wages for the year, with the tips you reported to your employer included, as box 1 includes them. On a joint return, add your spouse’s.
Where to find itForm W-2, box 1. With more than one job, add the box 1 amounts.
How this tool treats itModified adjusted gross income, which sets the phase-out, is your adjusted gross income (Form 1040 line 11b) here, because the foreign and possession income exclusions that would be added back are not included. The tips deduction itself does not lower it. Your wages are also part of your earned income for the refundable part of the child tax credit, and they stand in for your Social Security wages (boxes 3 and 7) when the Social Security wage base matters.
Allowed range$0 to $2,000,000
Qualified tips you reported to your employer
The tips you received as an employee and reported to your employer, in full. The cap is applied for you. They are already inside your wages above.
Where to find itFor 2026 and later, Form W-2, box 12, code TP. For 2025, box 7 of your W-2, or the total of your monthly tip reports (Form 4070) if your wages were over the Social Security wage base, since box 7 stops there; railroad employees find tips in box 14.
How this tool treats itQualified tips are cash tips received in an occupation on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024. Each listed occupation has a Treasury Tipped Occupation Code, and from 2026 your employer shows yours in box 14b; with code 000 alone, the tips do not qualify. Cash tips include tips paid by cash, check, credit or debit card, gift card or payment app, and tips you receive through a tip-sharing arrangement such as a tip pool. The customer must choose to leave the tip: a service charge or automatic gratuity added to the bill is not a qualified tip, even when it is passed on to staff, unless the customer can remove or change it. For 2026 and later, only tips your employer reports separately in box 12 with code TP count.
Allowed range$0 to $1,000,000
Not includedWhether your tips qualify. The calculator takes the amount you enter; the list of occupations is at IRS.gov/TippedOccupations. Tips paid in goods, services or digital assets are not cash tips, and a manager’s share of a tip pool does not qualify.
Tips you didn’t report to your employer
Turn this on if you received tips you did not report to your employer, and enter them.
Where to find itForm 4137, line 4: the tips you did not report, figured from your own daily record.
How this tool treats itForm 4137 adds unreported tips to your income and figures the Social Security and Medicare tax on them, which you pay with your return. Tips you report on it count toward the deduction like reported tips, as long as they meet the same rules. The calculator assumes every month’s tips with one employer came to at least $20, so all of them carry Social Security and Medicare tax.
Allowed range$0 to $1,000,000
Tips from self-employment
Turn this on if you received tips in your own business, such as rideshare, delivery or a booth you rent at a salon, and enter the business’s net profit and its tips.
How this tool treats itThe calculator treats all of your self-employment income as one business. It figures the business’s self-employment tax and its qualified business income deduction as well as the tips deduction, because the three interact.
Not includedMore than one business, a business loss, farm income, and a business with employees or business property.
Net profit from the business
The business’s income, tips included, less its expenses. Enter a loss as 0.
Where to find itSchedule C (Form 1040), line 31.
How this tool treats itSelf-employment tax is 12.4% for Social Security and 2.9% for Medicare on 92.35% of the net profit, and none when that figure is under $400; half of it is deducted from your income. The Social Security part stops at the wage base, less your W-2 wages. Qualified business income is the net profit less the deductible half of self-employment tax and your self-employed health insurance and retirement deductions. Tips you deduct are not qualified business income, so the tips deduction also shrinks your qualified business income deduction.
Allowed range$0 to $2,000,000
Not includedThe optional methods of Schedule SE, and the Additional Medicare Tax.
Tips received in the business
The qualified tips the business received, in full.
Where to find itThe tip amount your payers report: for 2026 and later, the separate tip amount on Form 1099-NEC, 1099-MISC or 1099-K. For 2025, the tips included on those forms.
How this tool treats itTips from a business are limited to its net income: the net profit less the deductible half of self-employment tax and your self-employed health insurance and retirement deductions, and never below zero. This is the net income limitation. Only the tips within it count.
Allowed range$0 to $1,000,000
Self-employed health insurance and retirement contributions
Your self-employed health insurance deduction and your SEP, SIMPLE or other self-employed retirement plan deduction for this business, added together.
Where to find itSchedule 1 (Form 1040), lines 16 and 17.
How this tool treats itThese come off your income before adjusted gross income, and off the business’s net income for the tips limit and its qualified business income. They are not part of your earned income for the child tax credit.
Allowed range$0 to $500,000
W-2 Social Security wages of the spouse who owns the business
On a joint return, the W-2 Social Security wages and tips of the spouse who owns the business only.
Where to find itThat spouse’s Form W-2, boxes 3 and 7.
How this tool treats itSocial Security tax on self-employment income stops once that spouse’s own wages and net earnings reach the wage base. Left at 0, the calculator may overstate self-employment tax when that spouse’s wages plus the business pass the base.
Allowed range$0 to $2,000,000
Children under 17
Your qualifying children who are under 17 at the end of the year and have a Social Security number valid for work.
How this tool treats itThe child tax credit first reduces your income tax. What is left can come back to you as the additional child tax credit, the refundable part, up to a fixed amount a child and to 15% of your earned income over $2,500. Earned income here is your wages, unreported tips and net profit, less the deductible half of self-employment tax. The tips deduction lowers your tax, which can leave more of the credit to be refunded, so its worth to a family can be a larger refund rather than a lower tax. The credit shrinks by $50 for each $1,000 (or part of one) of modified adjusted gross income over $400,000 on a joint return, or $200,000 otherwise.
Allowed range0 to 10
Not includedPart II-B of Schedule 8812, which can give a larger refundable credit to a family with three or more children. The calculator uses Part II-A and says when Part II-B may give more.
65 or older
Tick it if you were born before January 2 of the year 64 years before the tax year (for 2026, before January 2, 1962). On a joint return, tick your spouse’s too if it applies.
How this tool treats itThe IRS treats you as reaching 65 on the day before your 65th birthday. Each tick adds to your standard deduction, and for 2025 through 2028 also gives a $6,000 senior deduction that shrinks by 6% of modified adjusted gross income over $75,000, or $150,000 on a joint return. A larger deduction elsewhere can mean the tips deduction comes off income taxed at a lower rate.
Blind
Tick it if you are blind at the end of the year. On a joint return, tick your spouse’s too if it applies.
How this tool treats itBlind here means vision no better than 20/200 in the better eye with glasses or contacts, or a field of vision of 20 degrees or less. Each tick adds to the standard deduction.
Other dependents
Dependents who are not children under 17 with a Social Security number: an older child, a parent you support.
How this tool treats itEach gives a $500 credit against your income tax. It is never refundable.
Allowed range0 to 10
Other taxable income
Taxable income other than your wages, the business above, Social Security and qualified dividends and long-term gains: interest, pensions, IRA withdrawals, nonqualified dividends, net short-term gains.
Where to find itForm 1040 lines 2b, 4b and 5b, and nonqualified dividends (Form 1099-DIV box 1a minus box 1b).
Allowed range$0 to $5,000,000
Not includedLosses. Enter a net loss as 0.
Qualified dividends and long-term capital gains
Qualified dividends plus your net long-term capital gain. Leave them out of other taxable income.
Where to find itForm 1099-DIV box 1b for qualified dividends; Schedule D, or 1099-DIV box 2a if you do not file Schedule D.
How this tool treats itThese are taxed at 0%, 15% or 20%, stacked on top of your ordinary income. The deduction lowers ordinary income first, so it can move some gains into the 0% band. They also come off the taxable income that limits a qualified business income deduction.
Allowed range$0 to $5,000,000
Social Security benefits
Your net benefits for the year. On a joint return, add your spouse’s.
Where to find itBox 5 of Form SSA-1099.
How this tool treats itPart of your benefits may be taxable, figured with IRS Publication 915’s worksheet. The tips deduction comes after adjusted gross income, so it does not change how much of your benefits is taxable.
Allowed range$0 to $200,000
Other adjustments to income
Deductions you take before adjusted gross income, other than the self-employment ones above: a deductible IRA contribution, HSA contributions, alimony paid under a pre-2019 agreement.
Where to find itSchedule 1 (Form 1040), lines 11 through 14, 18 through 20, 23 and 25.
How this tool treats itLeave out student loan interest, which this calculator does not compute. 401(k) contributions are already out of W-2 box 1, so do not enter them here.
Allowed range$0 to $1,000,000
Itemized deductions
Your total itemized deductions, if you itemize. Leave it at 0 to use the standard deduction.
Where to find itSchedule A (Form 1040), line 17.
How this tool treats itThe calculator uses whichever is larger, your itemized total or your standard deduction. You can take the tips deduction either way.
Allowed range$0 to $5,000,000
Overtime and car loan interest deductions
Your qualified overtime deduction and your car loan interest deduction, added together.
Where to find itSchedule 1-A (Form 1040), lines 21 and 30 (2025 form).
How this tool treats itSchedule 1-A is the form for the four deductions for 2025 through 2028: tips, overtime, car loan interest and the senior deduction. Its total goes on Form 1040 line 13b for 2025, after adjusted gross income and beside the standard or itemized deduction, so none of the four changes adjusted gross income. The senior deduction is figured for you from the age boxes; do not include it here. An amount counted as qualified overtime cannot also count as a qualified tip.
Allowed range$0 to $35,000
Questions
Are tips tax-free now?
Which tips count?
Do automatic gratuities and service charges count?
Do tips paid through an app count?
Do I need to itemize to take it?
What changes for 2026?
Can we take it if we file separately?
I drive for a rideshare or delivery app. Does it work for tips on a 1099?
If I skip the tips deduction, do I keep my full qualified business income deduction?
Does it change my earned income credit or child tax credit?
When do I get the money?
Does my state follow it?
Version history
- September 26, 2026 (version 1.0.0): First version.