Free estimator
Tip tax deduction estimator
See roughly where your qualified tips land against the $25,000 annual cap for 2025–2028 — and what that could be worth at your marginal rate. An illustration from your own numbers, not a tax calculation.
Potentially deductible
$0
Deductible, based on what you entered.
- Tips for the year$0
- Tip-out paid$0
- Qualified tips$0
- Annual cap (per return)$0
- Income phase-out$0
- Illustrative federal income tax saving at 22%$0
You are above the cap. Tips beyond it do not add to the deduction — but they still belong in your log.
Your income is above the phase-out threshold, so part of the deduction is taken back — $100 for every $1,000 over.
Everything above is worked out in your browser. Nothing you type is uploaded, stored or logged — there is no server behind this page.
In short
- ✓It is a deduction up to $25,000 a year, available for tax years 2025–2028 — not a blanket exemption on tips.
- ✓Only voluntary tips count. Mandatory service charges generally do not.
- ✓If you owe little federal income tax, a deduction has little to reduce.
- ✓It rests on you having a daily record — which is the part almost nobody has.
How this estimate is worked out
- Your figures are scaled to a year — weekly × 52, monthly × 12, or taken as entered.
- Tip-out is subtracted, giving qualified tips — what you actually kept.
- The cap is applied:
deductible = min(qualified tips, $25,000). - The illustration multiplies the deductible amount by the marginal rate you chose.
That last step is the one to be most careful with. It is a labelled assumption you picked, not a calculation of your actual liability, and your real outcome depends on your filing status, your total income, your other deductions and your state.
Verify the parameters before you rely on them
The cap, the eligible years, the treatment of tip-outs and the exclusion of service charges are the four things this estimate rests on. They are stated openly here rather than buried, so you can check them: see IRS Publication 531 and the final regulations under IRC §224 and current IRS guidance, and confirm your own position with a qualified tax professional. Rules change; this page is not a substitute for the source.
The part the estimate can't do for you
Whatever the number above says, claiming a deduction on tip income depends on substantiation — a daily record of what you earned, kept as you earned it. The estimate is the easy half. The log is the half that takes a year, ten seconds at a time. Read the full explainer →
Questions
Is the tip deduction the same as tips being tax free?
No, and the popular name for it is misleading. It is a deduction against tip income up to an annual cap, not an exemption. If you owe little or no federal income tax to begin with, a deduction has little or nothing to reduce — which is why a large share of tipped workers see no benefit from it at all.
Do mandatory service charges count?
Generally no. An automatic gratuity added to a large party's bill is typically treated as a service charge and as wages, not as a voluntary tip, so it usually does not qualify. This is one of the clearest reasons to log your tips and your auto-grat separately rather than as one number.
Does my tip-out reduce the tips I can deduct?
Under the approach this estimator uses, yes: what you count is what you actually kept, after tip-outs paid to other workers. That is why the calculator asks for both figures. Confirm the treatment for your own arrangement with a tax professional before you rely on it.
What records do I need to claim it?
A daily record of your tips, kept as you earn them. The value of a contemporaneous log is that it was written at the time rather than reconstructed afterwards, which is precisely what makes it credible. A spreadsheet built in March from memory is worth far less than a dated entry made on the night.
Is this estimate reliable?
It is arithmetic on figures you typed, using parameters that are stated on this page. It is not a tax calculation, does not know your filing status, income, other deductions or state taxes, and is not advice. Treat it as a way to see the shape of the thing, then talk to a professional.
The estimate is the easy part.
Tipfolio tracks the real figure against the cap all year, from entries you made on the night — and exports the daily record behind it.
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