No Tax on Tips: Income Limits and Phase-Out, Explained
The $25,000 cap is flat regardless of filing status — but the same $100-per-$1,000 phase-out as overtime still applies above $150,000 (or $300,000 joint).
Updated 18 Sept 2026
The no-tax-on-tips deduction caps at $25,000 a year regardless of filing status, and shrinks by $100 for every $1,000 your MAGI exceeds $150,000 ($300,000 if married filing jointly), reaching $0 at $400,000 ($550,000 joint). Married filing separately can't claim it at any income, and the tips have to be from an occupation on Treasury's published list.
What does this mean for you? Work out your own number: No tax on tips calculator
The tips deduction (26 U.S.C. §224) has the same phase-out mechanic as the overtime deduction, but a different — and simpler — cap.
The cap doesn’t change with filing status
§224(b)(1) sets the limit at “$25,000” flat, with no separate, higher number for joint filers. This is the one place tips and overtime differ structurally: overtime’s cap doubles for joint filers ($12,500 → $25,000), while the tips cap is $25,000 for everyone who can claim it at all.
The phase-out is identical to overtime’s
§224(b)(2)(A) uses the exact same formula as the overtime deduction: the deduction is reduced by $100 for every $1,000 of MAGI above $150,000 (single) or $300,000 (joint) — a step function, not a smooth taper. Working that forward, the $25,000 cap reaches exactly $0 at:
- $400,000 MAGI, single filers.
- $550,000 MAGI, joint filers — coincidentally the same zero-point as the overtime deduction for joint filers, even though the tips cap itself is smaller.
Married filing separately: barred, not reduced
§224(f) restricts the deduction to taxpayers who, if married, file a joint return — a separate filer gets nothing, at any income, the same rule structure as the overtime deduction (there under §225(e)).
The occupation has to be on the list
Unlike overtime, which qualifies based on FLSA rules rather than your job title, the tips deduction only applies to “cash tips received… in an occupation which customarily and regularly received tips on or before December 31, 2024,” per §224(d)(1), as specified on Treasury’s published list. Passing the income test doesn’t help if the occupation itself isn’t on it — see which jobs qualify for the full list of 71 occupations.
Put your MAGI and eligible tip income into the no-tax-on-tips calculator to see your deduction after the phase-out.