Work out the federal qualified-tips deduction: the $25,000 cap, the MAGI phase-out, and the eligibility checks that most quick estimates skip. Every step is shown, and nothing you type leaves your browser.
Not every tip qualifies. The federal deduction covers voluntary cash or charged tips received in an occupation that customarily and regularly received tips on or before December 31, 2024, as listed in the IRS final regulations. A mandatory service charge is not a tip when the customer cannot disregard or modify it; negotiated amounts and tips earned in a specified service trade or business are outside the deduction. Only qualified tips reported on Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or Form 4137 can be deducted (IRS IR-2026-49, verified 2026-11-12).
Use tips reported to your employer or the IRS (W-2, 1099, Form 4137, or 2025 pay records).
Wages, salary and other income besides the tips above.
Only used to turn the deduction into a rough tax-saving figure.
Leave blank to use tips + other income as a proxy.
MAGI is estimated as your qualified tips plus other income. Actual modified AGI also adds back certain excluded foreign income (§§911/931/933) — if you know it, enter it above.
Illustrative deduction — eligibility unverified
This is a deduction from federal taxable income, not a refund, not an exemption from payroll taxes, and not a change to your paycheck. It reduces taxable income rather than adjusted gross income (IRC §63(b); IRS Notice 2025-69).
| # | Step | Amount |
|---|---|---|
| 1 | Qualified tips entered | $0 |
| 2 | Apply the §224(b)(1) annual cap ($25,000, all filing statuses) | $0 |
| 3 | Estimated MAGI (tips + other income, or your override) | $0 |
| 4 | Phase-out threshold for this filing status | $0 |
| 5 | MAGI above the threshold | $0 |
| 6 | Phase-out reduction ($100 per $1,000 of excess) | $0 |
| 7 | Deduction after the phase-out (not below $0) | $0 |
| 8 | Estimated federal income tax saved (deduction × your marginal rate) | $0 |
Step 6 uses a conservative round-up for partial $1,000 increments, matching the overtime calculator on this site. The regulation says "$100 for each $1,000" and does not spell out how to handle a leftover fraction — verify the statutory wording before relying on a non-round MAGI figure. Step 8 is a rough estimate: the deduction reduces taxable income, so bracket crossings, other deductions and credits can change the real saving.
Two worked examples published in the final regulations (26 CFR 1.224-1(b)(3)) can be used to sanity-check this tool:
Enter those values above (set eligibility to "Yes" and type the MAGI into the override field) and the calculator should reproduce both. Source: IRS Internal Revenue Bulletin 2026-18 (TD 10044), verified 2026-11-12.