What counts as a qualified tip
Qualified tips are voluntary cash or charged tips received from customers, including employee tip-sharing amounts. The payer must determine the amount without negotiation or a consequence for not paying.
Mandatory service charges and noncash items are not qualified tips. Enter only the amount that meets the federal definition.
The occupation list matters
The work must be in an occupation that customarily and regularly received tips on or before December 31, 2024. The IRS publishes the current occupation list.
Appearing on the list does not by itself prove every payment qualifies. The payment and business rules still apply.
Self-employed limits
A self-employed person cannot use more qualified tips than net income from the trade or business in which the tips were earned.
Tips earned in an excluded specified service trade or business may be ineligible even when the occupation otherwise appears on the list. Use the amount you have already determined is qualified.
Cap and MAGI phase-out
The annual qualified tips deduction cannot exceed $25,000 per return. The same $25,000 cap applies to a joint return; it is not a per-spouse cap.
The deduction begins to phase out above $150,000 MAGI, or $300,000 on a joint return, at $100 for every complete $1,000 over the threshold.
What the result means
The calculator subtracts the allowed deduction after applying the cap and phase-out, then compares estimated 2026 ordinary federal income tax before and after.
FICA remains due, state treatment may differ, and the estimate does not decide eligibility or replace a tax return.