Tax year 2026
Tips calculator
Enter your wages and tips to see how much the federal deduction for tips saves you, and your take-home pay with tips included.
The tips deduction saves you about $2,550 in tax this year.
| For the year | Without the deduction | With it | Difference |
|---|---|---|---|
| Gross pay | $46,000 | $46,000 | $0 |
| Federal income tax | $3,340 | $790 | −$2,550 |
| Social Security and Medicare | $3,519 | $3,519 | $0 |
| Take-home pay | $39,141 | $41,691 | +$2,550 |
| Kept of every $100 | $85.09 | $90.63 | +$5.54 |
From 2025 through 2028, workers in jobs that customarily receive tips can deduct up to $25,000 of qualified tips on the federal return. The limit shrinks by $100 for every $1,000 of income above $150,000 ($300,000 on a joint return). Tips are still subject to Social Security and Medicare. Some states follow the federal deduction and most do not; the state figures here use the rule for the state you chose. Mandatory service charges are not tips.
Estimate for tax year 2026. Your real paycheck depends on your W-4, your benefits and your employer's payroll system. This is education, not tax, payroll or financial advice.
How the tips deduction works
For tax years 2025 through 2028, people who work in jobs where tips are customary can deduct up to $25,000 of qualified tips a year from federal taxable income. The limit shrinks by $100 for every $1,000 of income above $150,000 ($300,000 on a joint return).
Tips are still wages for Social Security and Medicare, so 7.65% still comes out. Mandatory service charges added to a bill are not tips. The deduction is not available to married people filing separately.
State income tax: Arizona, Idaho, Indiana (2026 only), Iowa, Michigan, Montana, North Dakota and Oregon also take the federal deductions for tips and overtime off state taxable income. Colorado follows the tips deduction but taxes overtime in full. Georgia excludes up to $1,750 of tips and up to $1,750 of overtime premium pay. Alabama lets you deduct up to $1,000 of overtime premium pay. Every other state with an income tax still taxes tips and overtime in full.
The guide to the tips deduction explains who qualifies.
Questions
Are tips tax free in 2026?
Up to $25,000 of qualified tips can be deducted from federal taxable income. Social Security and Medicare still apply to every dollar of tips, and most states still tax them.
Do I still have to report my tips?
Yes. Tips must still be reported to your employer and on your tax return. The deduction is claimed on the return.
Does my state tax tips?
Arizona, Idaho, Indiana (2026 only), Iowa, Michigan, Montana, North Dakota and Oregon also take the federal deductions for tips and overtime off state taxable income. Colorado follows the tips deduction but taxes overtime in full. Georgia excludes up to $1,750 of tips and up to $1,750 of overtime premium pay. Alabama lets you deduct up to $1,000 of overtime premium pay. Every other state with an income tax still taxes tips and overtime in full.