For 2025–2028, workers can deduct up to $25,000 of qualified tips and up to $12,500 of qualified overtime ($25,000 if married filing jointly) from federal taxable income.
The rules at a glance
| Tips | Overtime | |
|---|---|---|
| Maximum deduction | $25,000 | $12,500 ($25,000 joint) |
| What counts | Voluntary cash or card tips in an occupation that customarily received tips by Dec 31, 2024 | Only the FLSA overtime premium: the part above your regular rate |
| Income phase-out | −$100 per $1,000 of MAGI over $150,000 ($300,000 joint) | Same |
| New W-2 code (2026) | Box 12, code TP | Box 12, code TT |
| Years | 2025–2028 | 2025–2028 |
Overtime: only the premium counts
If you're paid time-and-a-half, the deductible part is the extra half. The IRS's own example: overtime pay of $4,500 at time-and-a-half includes $1,500 of qualified overtime, one-third.
Worked example
A single server earning $48,000 with $12,000 of tips and $4,500 of time-and-a-half overtime pay could deduct $12,000 + $1,500 = $13,500. In the 12% bracket, that's roughly $1,620 less federal income tax.
Who can't claim
- Married couples filing separately (you must file jointly).
- People without a valid Social Security number.
- Self-employed people in certain specified service businesses, for the tips deduction.
These are federal income tax deductions only: Social Security, Medicare and most state income taxes still apply.
FAQs
How much can I deduct for tips in 2026?
Up to $25,000 of qualified tips, reduced by $100 for every $1,000 of income over $150,000 ($300,000 joint).
Does all my overtime pay count?
No. Only the premium above your regular rate counts; for time-and-a-half that's one-third of your overtime pay.
Do I need to itemize?
No. The deductions are available whether or not you itemize.
What are W-2 codes TP and TT?
From 2026, employers report cash tips in box 12 code TP and qualified overtime in box 12 code TT.
Plan it in minutes
Log every week's tips and overtime, see your deductions grow, and check your W-2 when it arrives.
See the No Tax on Tips & Overtime Tracker →
