How you earn tips

Gross pay from the job where you earn tips, before taxes and 401(k), including reported tips. If both spouses earn tips, combine their pay.

Schedule C net profit: everything you took in, including tips, minus business expenses.

Voluntary cash and card tips (including tip pools). Not automatic service charges. Combine both spouses if filing jointly.

Other wages and income, 401(k), children & age 65+

Pay from jobs without tips, such as your spouse’s job on a joint return. It counts toward the child tax credit, the EITC and the phase-out.

Income that isn’t wages, such as interest or unemployment benefits.

Traditional (not Roth) contributions lower the income used for the phase-out. The 2026 maximum, including the age 60–63 catch-up, is $35,750.

Deductions tied to the business. They lower your income and the net-income limit on tips.

Estimated federal tax savings

$1,440

from a $12,000 deduction for $12,000 of qualified tips on your 2026 return (single)

Tips deduction

$12,000

Tax without deduction

$3,580

Tax with deduction

$2,140

Your federal bracket

12%

Federal income tax, 2026

No deduction$3,580With deduction$2,140

Your deduction

Qualified tips
$12,000
Tips deduction (Schedule 1-A)
$12,000

Federal income tax with vs. without the deduction

WithoutWith deduction
Adjusted gross income (MAGI)$48,000$48,000
Standard deduction$16,100$16,100
No tax on tips deduction$0$12,000
Taxable income$31,900$19,900
Tax before credits$3,580$2,140
Federal income tax$3,580$2,140

This is a federal income tax deduction only. Your tips still count for Social Security and Medicare tax (about $918 on these tips), and your state may still tax them: state income tax follows your state’s own rules.

Savings at other tip amounts (same $48,000 wages)

Qualified tipsDeductionTax savings
$2,500$2,500$300
$5,000$5,000$600
$10,000$10,000$1,200
$15,000$15,000$1,800
$20,000$20,000$2,390
$25,000$25,000$2,890

No Tax on Tips Calculator by SureCalcs