No Tax on Tips 2026: The OBBBA $25,000 Deduction Explained
Updated 2026-08-11 · Source: OBBBA (H.R. 1, 2025) & IRS guidance · Retrieved 2026-08-11
What "no tax on tips" actually changes
The 2026 policy popularly called "no tax on tips" is not a blanket exemption. It is a new federal income tax deduction for qualified tips reported by tipped employees. For eligible workers, up to $25,000 of tips is deducted from income before federal income tax is computed. Payroll taxes (FICA) are unchanged.
| Parameter | 2025–2028 value | Source |
|---|---|---|
| Maximum tip deduction | $25,000 / year | OBBBA (H.R. 1, 2025) |
| Tax years covered | 2025, 2026, 2027, 2028 | OBBBA (H.R. 1, 2025) |
| MAGI phaseout — single | $150,000 | OBBBA (H.R. 1, 2025) |
| MAGI phaseout — married filing jointly | $300,000 | OBBBA (H.R. 1, 2025) |
| Tax type affected | Federal income tax only | IRS guidance |
| Social Security / Medicare (FICA) | Still applies to tips | IRS guidance |
Who qualifies
The deduction applies to cash tips an employee receives in an occupation that customarily and regularly received tips on or before December 31, 2024. Treasury designates the eligible occupation list. Tip income reported on your Form W-2 — including allocated tips in Box 8 — is the starting point for the calculation. If your total tips exceed $25,000, only the first $25,000 is deductible (subject to the phaseout).
Phaseout math (go / no-go)
If your MAGI is at or below the threshold, you can deduct the lesser of your qualified tips or $25,000. Above the threshold, the deduction is reduced and eventually eliminated. For most full-time tipped servers and bartenders earning under the MAGI limit, the full deduction applies. High-earning couples above $300,000 MAGI get little or no benefit.
Frequently Asked Questions
How much can I deduct under no-tax-on-tips in 2026?
Under the OBBBA, eligible tipped workers can deduct up to $25,000 of qualified tips from federal income tax per year for tax years 2025 through 2028. The deduction is an above-the-line (front-of-form) deduction that reduces adjusted gross income.
What is the income limit for the no-tax-on-tips deduction?
The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $150,000 for single filers and $300,000 for married couples filing jointly. Above those thresholds the allowable deduction is reduced.
Does no-tax-on-tips remove Social Security and Medicare (FICA) taxes on tips?
No. The OBBBA provision is a federal income tax deduction for qualified tips. Social Security and Medicare (FICA) taxes generally still apply to tip income. Only the federal income tax on qualified tips is affected, up to the $25,000 cap.
Which tips and occupations qualify?
The deduction applies to cash tips an employee receives in an occupation that customarily and regularly received tips on or before December 31, 2024, as designated by the Treasury. Tip income reported on Form W-2 (including allocated tips) is the starting point; the precise eligible occupation list is set by Treasury guidance.
How long does the no-tax-on-tips break last?
The deduction is scheduled for tax years 2025 through 2028. It is a temporary, sunsetting provision under the OBBBA and is not permanent.