Federal qualified-tips deduction
No Tax on Tips Deduction Calculator
Estimate the federal income-tax deduction for qualified cash tips under IRC section 224.
This is a filing-time federal income-tax deduction. It is not an exemption from Social Security or Medicare tax, and it does not automatically change paycheck withholding unless you submit an updated Form W-4.
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How the federal deduction is estimated
Use qualified cash tips, not all customer payments or service charges. IRS guidance ties qualified tips to occupations that customarily and regularly received tips on or before December 31, 2024, and to amounts reported on Form W-2, Form 1099, Form 4137, or another qualifying statement.
The federal cap is $25,000 per return. MAGI is AGI plus IRC 911, 931, and 933 exclusions. The phase-out starts above $150,000 of MAGI, or $300,000 for joint returns, by $100 per $1,000 above the threshold. Married filing separately taxpayers are not eligible.
The W-4 mode estimates how entering the allowed deduction on 2026 Form W-4 Step 4(b) could reduce federal withholding. Submitting an actual updated W-4 is required before payroll changes future checks.
Primary sources used
- IRS Notice 2025-69 for qualified tips, MAGI phase-out, and 2025 transition guidance.
- IRS tip recordkeeping and reporting for reporting, MFS, SSN, and tax-year availability language.
- IRS tipped occupation list for the occupation requirement.
State conformity table
State treatment is source-dated. Most jurisdictions now have official tips-specific treatment; 14 pending rows stay unresolved until DOR, form-instruction, enacted-law, or official legislative source text confirms IRC section 224 treatment.
| State | State treatment | Source date | Notes |
|---|---|---|---|
| Alabama | Does not conform | 2025-11-10 | Source - Alabama Revenue OBBBA executive summary lists new IRC section 224 No Tax on Tips and marks it Tied to Federal: No. |
| Alaska | No state wage income tax | 2026-07-20 | Source - Official tax division tax-type surface reviewed; no broad individual wage income tax. |
| Arizona | Conforms | 2026-06-13 | Source - Arizona HB4168 adds a subtraction for qualified tips deducted under IRC section 224. |
| Arkansas | Status pending - check back soon | Pending | No source confirmed yet - Arkansas DFA 2025 AR1000F/AR1000NR instructions were re-read on 2026-07-26; they instruct taxpayers to report wages, salaries, tips, etc. and list Arkansas deductions, but no source names OBBBA IRC section 224 qualified tips or a state no-tax-on-tips subtraction. |
| California | Does not conform | 2026-07-21 | Source - California FTB federal-change summary marks OBBBA section 70201 No Tax on Tips as No for the deduction on tips provisions. |
| Colorado | Conforms | 2025-07-30 | Source - Colorado OSPB says Colorado is one of four states that will immediately allow state deductions for tips due to H.R. 1. |
| Connecticut | Status pending - check back soon | Pending | No source confirmed yet - Connecticut DRS individual-income-tax pages and CGA tip-income leads were rechecked on 2026-07-26; no DRS guidance, enacted act, or form instruction was found that names OBBBA IRC section 224 qualified tips. |
| Delaware | Does not conform | 2026-07-21 | Source - Delaware DOR says OBBBA deductions for no tax on tips, overtime, and car loan interest are not itemized deductions and do not flow through to Delaware PIT. |
| District of Columbia | Does not conform | 2026-03-05 | Source - DC OTR 2025 D-40 booklet says No Tax on Tips cannot be claimed on the DC Individual D-40 return even if claimed federally. |
| Florida | No state wage income tax | 2026-07-20 | Source - Florida DOR says Florida does not impose a personal income tax. |
| Georgia | Does not conform | 2026-07-21 | Source - Georgia DOR says Georgia did not conform to OBBBA exemptions from income for overtime and tipped wages; a separate limited state exemption may apply. |
| Hawaii | Status pending - check back soon | Pending | No source confirmed yet - Hawaii DOTAX announcements and HB2329 HD1 materials were rechecked on 2026-07-26; the bill/testimony lead names OBBBA section 70201 / IRC section 224, but no enacted-law, form-instruction, or final DOTAX source confirms current qualified-tips treatment. |
| Idaho | Conforms | 2026-02-17 | Source - Idaho Tax Commission says HB559 conforms to most OBBBA provisions including deductions for qualified tips from wages. |
| Illinois | Status pending - check back soon | Pending | No source confirmed yet - Illinois IDOR additions/subtractions guidance was re-read on 2026-07-26; it says Illinois income starts with federal AGI and unlisted Schedule M subtractions cannot be claimed, but no current IDOR or enacted source explicitly resolves IRC section 224 qualified tips. |
| Indiana | Conforms | 2026-01-01 | Source - Indiana DOR legislative synopsis says taxpayers may deduct qualified tips equal to the federal IRC section 224 deduction for tax year 2026 only. |
| Iowa | Conforms | 2026-07-21 | Source - Iowa Revenue says Iowa rolling conformity adopts OBBBA changes including no tax on tips, no tax on overtime, and car loan interest. |
| Kansas | Status pending - check back soon | Pending | No source confirmed yet - Kansas DOR individual-income-tax FAQ and SB277 qualified-tips bill leads were rechecked on 2026-07-26; SB277 was only proposed/dead bill evidence and no KDOR guidance or enacted source resolves IRC section 224 qualified tips. |
| Kentucky | Does not conform | 2026-07-21 | Source - Kentucky 2025 Form 740 instructions say qualified tips, overtime income, and car loan interest are not deductible on the Kentucky return. |
| Louisiana | Status pending - check back soon | Pending | No source confirmed yet - Louisiana LDR income-tax pages and HB195/HB414 tip-deduction leads were rechecked on 2026-07-26; the legislature host failed DNS during direct fetch, and no reachable LDR guidance or enacted source resolves IRC section 224 qualified tips. |
| Maine | Does not conform | 2025-10-01 | Source - Maine Revenue Services consolidated conformity report treats No Tax on Tips as a below-the-line, non-direct conformity item and marks it do not adopt. |
| Maryland | Does not conform | 2026-01-06 | Source - Maryland Comptroller says PL 119-21 deductions for tips and other below-the-line items do not flow to Maryland returns or affect Maryland tax liability. |
| Massachusetts | Does not conform | 2026-07-26 | Source - Massachusetts DOR federal-tax-difference page says Massachusetts does not allow the federal qualified-tips income deduction and all tips income must be reported in Massachusetts. |
| Michigan | Conforms | 2026-01-01 | Source - Michigan Treasury taxpayer assistance manual says residents may deduct qualified tips deducted on the federal return beginning tax year 2026. |
| Minnesota | Does not conform | 2026-02-01 | Source - Minnesota Revenue nonconformity chart lists OBBBA section 70201 No Tax on Tips / IRC section 224 as no impact to Minnesota. |
| Mississippi | Status pending - check back soon | Pending | No source confirmed yet - Mississippi DOR individual income-tax FAQ was re-read on 2026-07-26 and says tips and gratuity are taxable income subject to withholding, but no DOR guidance, form instruction, or enacted source specifically resolves OBBBA IRC section 224 qualified tips. |
| Missouri | Status pending - check back soon | Pending | No source confirmed yet - Missouri DOR individual income tax year-changes page remained blocked by Incapsula HTTP 403 on 2026-07-26; because the official page text could not be personally inspected, the tips-specific search-result lead was not used to resolve the row. |
| Montana | Status pending - check back soon | Pending | No source confirmed yet - Montana DOR tax-simplification hub was re-read on 2026-07-26; it discusses the 2024 federal-taxable-income base and repealed service-industry tip deductions, but does not explicitly resolve OBBBA IRC section 224 qualified tips. |
| Nebraska | Does not conform | 2025-09-02 | Source - Nebraska DOR says no tax on tips, overtime, and car-loan-interest deductions have no automatic impact on Nebraska individual income tax receipts. |
| Nevada | No state wage income tax | 2026-07-20 | Source - Nevada DOR says residents do not pay state tax on salaries, wages, or similar compensation. |
| New Hampshire | No state wage income tax | 2026-07-20 | Source - New Hampshire DRA says there is no income tax on W-2 wages and the I&D tax is repealed. |
| New Jersey | Does not conform | 2025-12-01 | Source - New Jersey says OBBBA federal deductions for overtime, tips, and seniors do not affect New Jersey individual income tax returns. |
| New Mexico | Does not conform | 2026-07-21 | Source - New Mexico legislative OBBBA presentation says New Mexico does not conform to section 70203 No Tax on Tips because it is a below-the-line federal adjustment. |
| New York | Does not conform | 2026-07-21 | Source - New York tax expenditure proposal says the federal qualified-tips deduction does not flow through to the state level; the listed state subtraction is only a proposal. |
| North Carolina | Does not conform | 2026-02-27 | Source - NCDOR Q8 says taxpayers cannot deduct the new federal deductions for tips, overtime pay, car loan interest, and seniors on North Carolina individual returns. |
| North Dakota | Conforms | 2026-07-21 | Source - North Dakota 2025 booklet says North Dakota taxable income starts with federal taxable income and includes OBBBA tip income and overtime pay exclusions by default. |
| Ohio | Status pending - check back soon | Pending | No source confirmed yet - Ohio DOR conformity URL returned 404 and the official LSC PDF lead timed out during direct fetch on 2026-07-26; because the provision-specific text could not be personally inspected, the row remains pending. |
| Oklahoma | Status pending - check back soon | Pending | No source confirmed yet - Oklahoma Tax Commission income-tax help page and Oklahoma Legislature search surfaces were rechecked on 2026-07-26; no OTC guidance, form instruction, or enacted bill names IRC section 224 qualified tips. |
| Oregon | Conforms | 2026-07-21 | Source - Oregon Schedule OR-ASC instructions say taxpayers may claim the same federal deductions for tip income, overtime wages, and passenger vehicle loan interest. |
| Pennsylvania | Status pending - check back soon | Pending | No source confirmed yet - Pennsylvania DOR PIT pages and HB1610 fiscal-note leads were rechecked on 2026-07-26; the fiscal-note PDF timed out during direct fetch and the reachable DOR pages did not name OBBBA no-tax-on-tips or IRC section 224 qualified tips. |
| Rhode Island | Does not conform | 2026-04-16 | Source - Rhode Island regulation 280-RICR-20-55-17 says Rhode Island is decoupled from IRC section 224 and will not allow the qualified-tips exclusion. |
| South Carolina | Does not conform | 2026-01-30 | Source - South Carolina DOR Information Letter 26-4 says taxpayers claiming the federal qualified-tips deduction must adjust the South Carolina return until conformity is addressed. |
| South Dakota | No state wage income tax | 2026-07-20 | Source - South Dakota DOR says South Dakota does not impose a state income tax. |
| Tennessee | No state wage income tax | 2026-07-20 | Source - Tennessee DOR says the Hall income tax was repealed for tax periods beginning 2021 or later. |
| Texas | No state wage income tax | 2026-07-20 | Source - Texas official sources identify no personal income tax. |
| Utah | Does not conform | 2026-01-15 | Source - Utah Tax Commission 2025 tax updates presentation says OBBBA tips deductions are below-the-line and have no effect on the Utah return. |
| Vermont | Does not conform | 2026-01-06 | Source - Vermont legislative workgroup material says the IRC section 224 qualified-tips deduction is made from federal taxable income and does not flow through to Vermont. |
| Virginia | Status pending - check back soon | Pending | No source confirmed yet - Virginia Tax Bulletin 26-1 was re-read on 2026-07-26; it says Virginia conforms to P.L. 119-21 only to the extent changes affect federal AGI or federal itemized deductions and lists exceptions, but it does not name tips or IRC section 224. |
| Washington | No state wage income tax | 2026-07-20 | Source - Washington DOR says Washington has no individual income tax. |
| West Virginia | Does not conform | 2026-01-29 | Source - West Virginia Tax & Revenue fiscal note says the federal qualified-tips deduction is not included in federal adjusted gross income, the starting point for West Virginia PIT, and that a new Schedule M modification bill would be needed. |
| Wisconsin | Status pending - check back soon | Pending | No source confirmed yet - Wisconsin DOR 2025 Tax Update PDF search lead appeared provision-specific, but revenue.wi.gov failed DNS resolution again on 2026-07-26; because the official PDF could not be personally fetched/read, the row remains pending. |
| Wyoming | No state wage income tax | 2026-07-20 | Source - Wyoming official DOR tax division surface does not show individual income tax. |
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Frequently asked questions
What is the no tax on tips deduction?
It is a federal income-tax deduction for qualified cash tips, not a FICA exemption or a rule that automatically changes paycheck withholding.
Who qualifies for the qualified tips deduction?
Qualified tips generally must be cash tips from an IRS-listed tipped occupation, reported on an information return or Form 4137, and claimed on an eligible return.
How is this different from the overtime deduction?
The tips deduction is under IRC section 224 and uses a flat $25,000 per-return cap; the overtime deduction is under IRC section 225 and applies to qualified overtime premium compensation.
Do states follow the federal tips deduction?
State treatment varies. Some states conform because the federal deduction flows into their state starting point, some disallow it, and unresolved states stay pending until official tips-specific guidance is available.
Which states currently conform to the qualified tips deduction?
The state table currently lists these conforming states from official sources: Arizona, Colorado, Idaho, Indiana, Iowa, Michigan, North Dakota, and Oregon.
Why are some states still marked pending?
Pending means official DOR, form-instruction, enacted-law, or legislative source text has not yet resolved IRC section 224 qualified tips treatment. 14 rows are currently pending. We do not infer a yes or no from unrelated overtime guidance.
When does the federal tips deduction sunset?
Under current law, it applies to tax years 2025 through 2028.