Tip Deduction
$15,000
Federal Savings
$1,800
State Savings
$710
Total Tax Savings
$2,510
What qualifies as tip income under the OBBBA?
Under the One Big Beautiful Bill Act (OBBBA), qualifying tip income includes cash tips, credit/debit card tips, and tips received through tip-sharing arrangements in occupations that customarily receive tips. This covers industries such as restaurants, bars, hotels, salons, and ride-share services. Tips must be reported to your employer as part of your regular income.
What is the $25,000 tip deduction cap?
The OBBBA limits the no-tax-on-tips deduction to a maximum of $25,000 per year. If you earn more than $25,000 in tips annually, only the first $25,000 qualifies for the federal income tax deduction. Any tip income above that cap is taxed at normal rates.
What is the MAGI phaseout and how does it work?
The tip income deduction phases out based on your Modified Adjusted Gross Income (MAGI). If your total income exceeds $150,000 for single filers (or $300,000 for married filing jointly), you lose the entire deduction. This is a cliff phaseout -- once you exceed the threshold, the deduction drops to zero.
Does FICA (Social Security & Medicare) still apply to tips?
Yes. The OBBBA no-tax-on-tips provision only exempts qualifying tip income from federal income tax. FICA taxes -- Social Security (6.2%) and Medicare (1.45%) -- still apply to all tip income. There is no FICA exemption for tips under this legislation.
When does the no-tax-on-tips provision expire?
The OBBBA no-tax-on-tips deduction is effective for tax years 2025 through 2028. It is scheduled to sunset after December 31, 2028, unless Congress passes legislation to extend or make the provision permanent.
OBBBA-Aligned: Calculations reflect the One Big Beautiful Bill Act tip income deduction provisions for 2025-2028. FICA taxes still apply to all tip income. Actual tax liability may differ when you file your annual return.
Disclaimer: This calculator provides estimates based on current IRS rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your filing status, state of residence, deductions, and individual circumstances. Always consult a qualified tax professional or CPA before making financial decisions. Read our terms
This calculator uses official rates and thresholds from:
- IRS — One Big Beautiful Bill: No Tax on Tips
- IRS — OBBBA Tax Deductions for Working Americans
- Revenue Procedure 2024-40 — Inflation Adjustments for 2025
- IRS Topic 751 — Social Security and Medicare Withholding Rates
Last verified: April 2026 · Tax year 2026. Results are indicative — consult a qualified accountant for personalised advice.