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.
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. This first build resolves no-wage-income-tax jurisdictions and leaves other states pending until official tips-specific guidance is available.
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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. This first-pass table marks unresolved wage-income-tax states as pending rather than guessing.
When does the federal tips deduction sunset?
Under current law, it applies to tax years 2025 through 2028.