Tips can be deducted up to $25,000 a year; overtime premium only up to $12,500 for single filers. Same law, same 2028 expiry, very different math. See which OBBBA deduction saves you more, and what neither touches.
Adjust the variables below to simulate outcomes, compare rates, and see real-time projections.
A direct comparison of features, rules, limits, and eligibility requirements.
| Feature / Detail | No Tax on Tips | No Tax on Overtime |
|---|---|---|
Maximum annual deduction | $25,000 (all filing statuses) | $12,500 single / $25,000 joint |
Who qualifies | W-2 employees and 1099 contractors in customarily tipped occupations | W-2 employees with FLSA premium overtime only, no contractors |
What income counts | Cash, card and tip-pool tips reported to your employer or on Form 4137/Schedule C | Only the premium half of time-and-a-half, not the full overtime paycheck |
Single phase-out (MAGI) | $150,000 to $400,000 | $150,000 to $275,000 |
Joint phase-out (MAGI) | $300,000 to $550,000 | $300,000 to $550,000 |
FICA payroll tax | Still due: 7.65% on every tip dollar | Still due: 7.65% on every overtime dollar |
Married filing separately | Not allowed | Not allowed |
Expiry | December 31, 2028 | December 31, 2028 |
Analyze the advantages and drawbacks of each financial product before making a decision.
Congress wrote two deductions into the One Big Beautiful Bill Act, and they look like twins until you read the caps. Qualified tips: deduct up to $25,000, whatever your filing status. Qualified overtime premium: $12,500 for singles, $25,000 for joint filers.
That asymmetry decides real money. A single server with $18,000 of reported tips deducts all $18,000. A single warehouse worker with $18,000 of overtime premium deducts $12,500 and pays full income tax on the remaining $5,500.
One more trap hides in the overtime definition: only the premium half counts. Work 500 overtime hours at $30/hour (time-and-a-half on a $20 base) and your paycheck shows $15,000 of overtime, but only the $5,000 premium portion is deductible. Tip earners have no equivalent haircut.
Both deductions shrink by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (joint). Because the caps differ, the runway differs: a single filer's tips deduction survives until $400,000 MAGI, while the overtime deduction hits zero at $275,000.
Picture a single travel nurse at $200,000 MAGI with heavy overtime: her $12,500 cap has already shrunk by $5,000 to $7,500. A single high-end sommelier at the same $200,000 keeps $20,000 of his $25,000 tips cap. Same income level, same law: a $12,500 gap in deductible income.
If a raise or a bonus is about to push you across $150,000, this chart is the one to check before assuming the deduction still covers you.
Maya tends bar in Austin: $45,000 base wages plus $12,000 in reported tips. Her taxable income after the $16,100 standard deduction sits in the 12% bracket, so deducting the $12,000 of tips saves her about $1,440 of federal income tax at filing.
Here is the part the headlines skip: those same tips still owe FICA, 7.65%, or about $918 — withheld from every paycheck all year. 'No tax on tips' means no federal income tax, not no tax. Her Social Security earnings record still credits the tips, which is genuinely good for her future benefit.
Two practical moves follow. First, report every tip: unreported cash tips can't be deducted and don't build benefits. Second, don't chase the deduction with extra withholding allowances mid-year: it's claimed on Form 1040 at filing, and the IRS updated 2026 withholding tables to handle it automatically.
State taxes first. These are federal deductions; whether your state honors them depends on its conformity rules. No-income-tax states (Texas, Florida, Nevada, Washington and the rest) are unaffected. States that conform automatically will mirror the deduction; California, New York and other selective-conformity states need their own legislation. Until your state confirms, assume your state bill does not change.
Records second. For tips, the deduction only covers amounts actually reported — W-2 box entries, Form 4137, or Schedule C for the self-employed. Cash tips that never hit a report are not deductible and never build Social Security credits. For overtime, your employer reports the qualifying premium separately on your W-2; if you moonlight for a second employer, each W-2 stands alone but the cap applies to your combined total.
Keep pay stubs and tip logs for three years after filing. These deductions are new, the IRS has flagged them for compliance review, and the taxpayer who can show a daily tip record wins that letter exchange in one reply.
A single bartender and a single machinist earning the same $15,000 of extra income are treated very differently: the bartender can deduct all $15,000, the machinist caps out at $12,500, and above $150,000 MAGI the machinist's deduction disappears twice as fast. For married couples the caps and phase-outs are identical, so the only question is where the extra income comes from. And if you earn both, this is not a choice at all: the deductions stack, up to $37,500 for a single filer. Just remember what neither does: your FICA bill and your state taxes don't move.
Servers, bartenders, stylists and gig workers: especially single filers, and anyone with tip income above $12,500 a year.
Hourly W-2 employees with regular time-and-a-half schedules, especially married couples where both spouses log overtime.
The rules and figures on this page are researched from official primary sources:
