What’s the maximum tip deduction and when does it phase out?
The short answer
The federal qualified tips deduction is capped at $25,000 per return for tax years 2025–2028. It starts phasing out when your modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 if married filing jointly). Schedule 1-A reduces the deduction by $100 for each full $1,000 of MAGI over the threshold (partial thousands are dropped). You can claim it whether you itemize or take the standard deduction. Tips generally still face FICA, and states may still tax tips.
Example math
Qualified tips $25,000. Filing single. Illustrative rate 22% (illustrative only; enter your own marginal rate).
- Cap: min($25,000, $25,000) = $25,000.
- MAGI $148,000 → under $150,000 → reduction $0 → deduction $25,000. Illustrative savings ≈ $5,500.
- Same tips, MAGI $151,500 → excess $1,500 → floor($1,500 ÷ $1,000) = 1 → reduction $100 → deduction $24,900.
- A deep phase-out can drive the deduction to $0.
Not tax advice. Your MAGI definition and filing status control the phase-out.
Check your estimate
The calculator runs the same round-down phase-out math for a ballpark, not a filing figure.
Open the calculator
Plain English
Cap
IRC §224(b)(1) and Schedule 1-A Part II limit the deduction to $25,000 per taxable year (per return), not per job. See No Tax on Tips with multiple jobs.
Phase-out (Schedule 1-A Part II)
- Start with the smaller of your qualified tips or $25,000.
- Compare your MAGI to $150,000 (or $300,000 joint).
- If you’re over: subtract the threshold, divide by $1,000, round down to a whole number, multiply by $100, and subtract that from the capped amount (not below zero).
Common mistakes
- Thinking the $25,000 is “per job.”
- Using AGI without the MAGI add-backs in the form and its instructions.
- Ignoring that married filers must file jointly to claim at all.
- Treating illustrative calculator savings as a guaranteed refund.
Official sources
Last verified:
Sources checked: Schedule 1-A Part II and IRC §224(b). Confirmed: the $25,000 cap and the MAGI phase-out math.