---
title: "Tip Deduction Cap and Income Phase-Out"
description: "The federal tip deduction is capped at $25,000 per return and phases out when MAGI exceeds $150,000 ($300,000 if married filing jointly)."
url: https://www.tipmaxapp.com/us/answers/no-tax-on-tips-dollar-cap-and-phase-out
language: en
publisher: TipMax (Entermaurs Incorporated)
date_published: 2026-09-23
last_verified: 2026-09-23
---

# What’s the maximum tip deduction and when does it phase out?

**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).

1. Cap: min($25,000, $25,000) = **$25,000**.
2. MAGI **$148,000** → under $150,000 → reduction **$0** → deduction **$25,000**. Illustrative savings ≈ **$5,500**.
3. Same tips, MAGI **$151,500** → excess $1,500 → floor($1,500 ÷ $1,000) = **1** → reduction **$100** → deduction **$24,900**.
4. A deep phase-out can drive the deduction to **$0**.

**Not tax advice.** Your MAGI definition and filing status control the phase-out.

## 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](https://www.tipmaxapp.com/us/answers/no-tax-on-tips-multiple-jobs).

### Phase-out (Schedule 1-A Part II)

1. Start with the smaller of your qualified tips or $25,000.
2. Compare your MAGI to **$150,000** (or **$300,000** joint).
3. 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

- [Schedule 1-A (Form 1040)](https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf)
- [IRS: Tip recordkeeping and reporting (qualified tips deduction section)](https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting)
- [IRS newsroom: Schedule 1-A published (IR-2026-28)](https://www.irs.gov/newsroom/irs-published-schedule-taxpayers-will-use-to-claim-deductions-on-no-tax-on-tips-no-tax-on-overtime-no-tax-on-car-loans-no-tax-on-seniors)
- [Congress.gov: Public Law 119-21 §70201 (IRC §224)](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm)

## Last verified

September 23, 2026. Sources checked: Schedule 1-A Part II and IRC §224(b). Confirmed: the $25,000 cap and the MAGI phase-out math.

## Related

- [How No Tax on Tips works](https://www.tipmaxapp.com/us/answers/how-no-tax-on-tips-works-2026)
- [How to claim on Schedule 1-A](https://www.tipmaxapp.com/us/answers/how-to-claim-schedule-1a)
- [Married filing and the tip deduction](https://www.tipmaxapp.com/us/answers/married-filing-and-tip-deduction)
- [Multiple jobs](https://www.tipmaxapp.com/us/answers/no-tax-on-tips-multiple-jobs)

## How TipMax helps with this

Knowing whether you’re near the $25,000 cap starts with a running total.

TipMax is an iPhone app for servers and bartenders that tracks tips and tip-outs and turns a restaurant menu into study flashcards.

- Log cash and card tips per shift in seconds.
- Income projections and goals you can watch fill up.

Download TipMax free: https://apps.apple.com/us/app/tipmax-study-track-earn/id6744850146

---

TipMax Answers explains public IRS guidance in plain English for tipped workers. It is **not tax, legal, or accounting advice**. Rules can change. Confirm figures on IRS.gov and with a qualified tax professional before you file. TipMax the app helps you track tips and true hourly pay; it does not file your taxes.