Estimate your federal tax savings under the OBBBA $25,000 tip deduction — and see exactly what FICA and state taxes still apply to your tips.
Source: IRS — What the "No Tax on Tips" deduction means for you
The table below shows estimated federal tax savings at common income levels. All figures use 2026 OBBBA brackets and standard deductions, calculated with the same engine as the interactive tool above.
| Base Income | Tip Income | Filing Status | State | Tip Deduction | Federal Savings |
|---|---|---|---|---|---|
| $30,000 | $15,000 | Single | California (non-conforming) | $15,000 | $1,800 |
| $50,000 | $20,000 | Single | Iowa (conforming) | $20,000 | $2,750 federal + $760 state |
| $80,000 | $25,000 | Married Filing Jointly | Texas (no income tax) | $25,000 | $3,000 |
| $160,000 | $25,000 | Single | Texas (phase-out applies) | $21,500 | $5,160 |
Federal savings shown only. FICA taxes (Social Security + Medicare) still apply to all tip income. State figures depend on each state's conformity status.
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The no tax on tips deduction is an above-the-line deduction under IRC §224, introduced by the One Big Beautiful Bill Act. It directly reduces your federal taxable income — but it is not a tax credit, and it does not reduce FICA (Social Security and Medicare) obligations.
The tip deduction reduces income tax only. The following still apply to tip income in full:
For many tipped workers, FICA represents a significant additional tax. A server earning $15,000 in tips will still owe at least $1,148 in FICA on those tips (6.2% SS + 1.45% Medicare = 7.65%), regardless of the income tax deduction.
One of the most important — and most overlooked — aspects of the OBBBA tip deduction is that it applies only to federal income tax. Whether your state follows suit depends on your state's tax conformity approach.
Workers in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming pay no state income tax on any income, including tips. The OBBBA deduction is irrelevant for state purposes in these states — you already owe $0 state income tax on tips.
States with rolling conformity to the Internal Revenue Code automatically adopt changes like IRC §224. As of May 2026, confirmed conforming states include Iowa, Montana, and North Dakota. In these states, the same tips you deduct federally are also excluded from state taxable income, providing a double saving.
For example, a server in Iowa earning $20,000 in tips at a $50,000 base salary could save approximately $760 in Iowa state tax in addition to the $2,750 federal saving — a combined benefit of $3,510.
California, New York, Illinois, New Jersey, Connecticut, Hawaii, Washington D.C., and Colorado have explicitly decoupled from the OBBBA tip deduction. In these states, tip income remains fully taxable at the state level, and workers must add back the federal deduction on their state return. California's non-conformity alone affects millions of restaurant and hospitality workers.
State legislatures continue to act through the 2025–2028 window. A state that hasn't conformed today may do so in 2027. Always verify the current position with your state's Department of Revenue or a qualified tax professional before filing.
Use our US state income tax calculators to see your full state tax picture.
The IRS published final regulations (TD 10044, April 13, 2026) listing over 70 qualifying occupations in eight categories. An occupation qualifies if it customarily and regularly received tips on or before December 31, 2024.
Not eligible: Workers at Specified Service Trades or Businesses (SSTB) — which typically includes law, accounting, medicine, financial services, consulting, and performing arts — are excluded from the deduction even if those workers occasionally receive tips.
If your occupation is not on the final IRS list, you cannot claim the deduction regardless of whether you receive tips. The list is exhaustive — no facts-and-circumstances test applies for unlisted occupations.
The table below compares federal income tax for a single filer at various income levels, showing the impact of the maximum $25,000 tip deduction. State taxes and FICA are excluded.
| Total Income | Tips Portion | Without Deduction | With $25k Deduction | Savings |
|---|---|---|---|---|
| $35,000 | $10,000 | $2,020 | $890 | $1,130 |
| $55,000 | $15,000 | $4,420 | $2,620 | $1,800 |
| $70,000 | $20,000 | $6,570 | $3,820 | $2,750 |
| $95,000 | $25,000 | $12,070 | $6,570 | $5,500 |
Single filer, 2026 OBBBA federal brackets and $16,100 standard deduction. Tips constitute the stated portion of total income.
The no tax on tips deduction is an above-the-line deduction introduced by the One Big Beautiful Bill Act (OBBBA), signed into law in 2025. It allows eligible tipped workers to deduct up to $25,000 in qualified tip income from their federal taxable income. This reduces your federal income tax — but not your Social Security or Medicare taxes, which still apply to all tip income.
Up to $25,000 per year, but limited to your actual tip income if that's less. The deduction phases out for higher earners: it reduces by $100 for every $1,000 your modified adjusted gross income (MAGI) exceeds $150,000 (single) or $300,000 (married filing jointly). The deduction is fully phased out at $400,000 (single) or $550,000 (MFJ).
No. The OBBBA tip deduction only reduces your federal income tax. Social Security (6.2% employee rate) and Medicare (1.45%) taxes continue to apply to all tip income. If your total income exceeds $200,000 (single) or $250,000 (MFJ), the 0.9% Additional Medicare Tax also applies. Our calculator shows these FICA amounts separately.
Nine states have no income tax and therefore no state income tax on tips: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Of the 41 states with income tax, approximately 19 have adopted the federal tip deduction as of May 2026 — including Iowa, Montana, and North Dakota — while about 21 have not, including California, New York, Illinois, New Jersey, Connecticut, Hawaii, and Washington D.C. Conformity is evolving as state legislatures act through 2028.
Workers in occupations that customarily and regularly received tips before December 31, 2024, as listed in IRS final regulations (TD 10044, April 2026). Over 70 qualifying occupations span eight categories: food and beverage service, entertainment and events, hospitality and guest services, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery. Workers at Specified Service Trades or Businesses (SSTB) generally do not qualify.
The deduction applies to tax years 2025 through 2028 — four tax years. It is set to sunset after the 2028 tax year unless Congress extends or makes it permanent. This means the last year to claim it is on your 2028 return, filed in 2029. Our calculator reflects the current 2026 rules.
A qualified tip must be: (1) paid voluntarily by the customer — mandatory service charges or automatic gratuities do not qualify; (2) paid in cash or a cash equivalent such as a credit card, debit card, gift card, or mobile payment; and (3) received directly by the worker or through a legitimate tip-sharing or tip-pool arrangement. Tips reported on Form W-2 (Box 12, code TP) or Form 1099 are typical qualifying amounts.
No. Mandatory service charges — such as an automatic 18% gratuity added to large party checks — do not qualify as tips under the OBBBA deduction, even if the employer distributes them to servers. The customer must have voluntarily given the tip and had the ability to modify or decline it. Only genuinely voluntary tips qualify.
Self-employed individuals who work in qualifying occupations can claim the deduction, but with two important limits: (1) the deduction cannot exceed their net income from the business where tips are earned; and (2) workers in Specified Service Trades or Businesses (SSTB — which typically includes professionals like lawyers, doctors, and financial advisors) are ineligible. Additionally, self-employed workers still owe self-employment tax (15.3%) on tip income — the deduction only reduces income tax.
The $25,000 maximum deduction reduces by $100 for every $1,000 your modified adjusted gross income (MAGI) exceeds $150,000 if you file single, or $300,000 if you file married jointly. For example, a single filer with $175,000 MAGI would see a phase-out of $2,500 (25 × $100), reducing the maximum deduction from $25,000 to $22,500. At $400,000 (single) or $550,000 (MFJ), the deduction phases out entirely.
Disclaimer: This calculator is for educational and informational purposes only. It does not constitute tax, legal, or financial advice. Results are estimates based on 2026 rates published by the IRS under the One Big Beautiful Bill Act. Actual tax liability depends on your individual circumstances, occupation, filing status, and state of residence. State conformity information reflects best available data as of June 2026 and may change as state legislatures act. Always consult a qualified CPA, enrolled agent, or tax professional before making financial decisions.
Authored by: Daniel · CountryTaxCalc | Last Updated: June 2026
Primary source: IRS — One Big Beautiful Bill: No Tax on Tips and Overtime