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Tips & Overtime Tax Deduction Calculator (2026)

Four deductions, four separate phaseouts — stacked

Data verified: Aug 2026 · Source: P.L. 119-21 (OBBBA)

A tips tax deduction calculator that also stacks overtime, car loan interest and the senior deduction — four provisions with four separate phaseouts.

Your details
People aged 65 or over
Total Schedule 1-A deduction
—
Deduction by category
Total deduction vs. MAGI
MAGI

How this is calculated

OBBBA created four new deductions reported on the new Schedule 1-A. Unusually, all four are available whether you itemize or take the standard deduction — they sit alongside it rather than competing with it.

The trap is that each has its own phaseout threshold and its own phaseout rate. The tips and overtime deductions taper at 10% of MAGI above $150,000 single or $300,000 joint; car loan interest tapers twice as fast, at 20% above $100,000 or $200,000; and the senior deduction tapers at 6% above $75,000 or $150,000. They must be computed independently and only then added together.

Formula
tips = max(0, min(tips, $25,000) − 0.10 × max(0, MAGI − $150k/$300k)) overtime = max(0, min(premium, cap) − 0.10 × max(0, MAGI − $150k/$300k)) carLoan = max(0, min(interest, $10,000) − 0.20 × max(0, MAGI − $100k/$200k)) senior = max(0, $6,000 × seniors − 0.06 × max(0, MAGI − $75k/$150k)) total = tips + overtime + carLoan + senior
Overtime cap is $12,500 for a single filer and $25,000 combined on a joint return. All four provisions apply to tax years 2025 through 2028 and then sunset.

Worked example

Married filing jointly with MAGI of $160,000, both spouses aged 65 or over.

Senior deduction before phaseout: $6,000 × 2$12,000
Phaseout: 6% × ($160,000 − $150,000)−$600
Other three deductions at this MAGIUnaffected
Senior deduction allowed$11,400

What actually qualifies as a tip

Voluntary cash and charged tips received in an occupation that customarily and regularly received tips, per the IRS occupation list as it stood on 31 December 2024. A mandatory service charge added by the employer is not a tip, even if it is passed to staff. Tips must be reported — on a W-2, a 1099 or form 4137. A self-employed person's deduction is capped at the net income of the tipped business, and those same earnings drive your quarterly estimated tax payments.

Only the premium half of overtime

This one is widely misread. If you work an overtime hour at time-and-a-half, only the extra half qualifies — not the whole payment. Holiday pay, weekend differentials and premiums required by state rather than federal law do not count. For 2025 only, if your pay stub does not break the premium out separately, transition relief lets you treat one third of total overtime pay as the deductible premium.

The car loan conditions are strict

All of these must hold: the loan originated after 31 December 2024; the vehicle is new, with its original use beginning with you; final assembly took place in the United States; the vehicle is for personal use; and the loan is secured by a first lien. A lease does not qualify, and neither does a used vehicle. The 20% phaseout rate means the deduction is gone entirely by $150,000 single or $250,000 joint.

Frequently asked questions

Do I need to itemize to claim these?
No, and that is what makes them unusually valuable. All four are claimed on the new Schedule 1-A and are available whether you itemize or take the standard deduction, so they sit alongside it rather than competing with it. Most new deductions force a choice between themselves and the standard deduction; these four do not.
Why do the four phase out at different points?
Because they were drafted as separate provisions with separate policy targets rather than as one coherent package. Tips and overtime taper at 10% above $150,000 single or $300,000 joint, car loan interest twice as fast at 20% above $100,000 or $200,000, and the senior deduction at 6% above $75,000 or $150,000. You compute each against its own threshold, then add the results.
Is my whole overtime payment deductible?
No, and this is the most widely misread part of the rule. Only the FLSA half-time premium qualifies, meaning the extra half in time-and-a-half. The base hourly portion of an overtime hour is ordinary wages. Holiday pay, weekend differentials and premiums required by state rather than federal law do not count toward the deduction at all.
Does a used car qualify for the interest deduction?
No. The vehicle must be new, with its original use beginning with you, and final assembly must have taken place in the United States. The loan must have originated after 31 December 2024, be for personal use, and be secured by a first lien on the vehicle. Leases are excluded entirely, as is refinancing an older loan.
Can married filing separately claim these?
Not the tips deduction, which requires a joint return outright. The other three follow their own rules, but married filing separately is generally a poor choice when any of these deductions are in play, because the thresholds are halved and several other credits are lost at the same time. Run the numbers both ways before filing separately.
How long do these last?
Tax years 2025 through 2028 inclusive. All four provisions sunset after 2028 unless Congress extends them, so they are a four-year window rather than a permanent feature of the code. If you have flexibility over when income arrives, that end date is worth building into any multi-year plan.

Related calculators

SALT Deduction Calculator How much of your state and local tax payment survives the 30% phaseout. Quarterly Estimated Tax Calculator Self-employment tax, income tax and the safe harbor that avoids a penalty. Severance Pay Tax Calculator What actually lands in your account after supplemental withholding. AMT Calculator Alternative Minimum Tax owed once your exemption starts eroding.
Sources
P.L. 119-21 (OBBBA) · IRS Schedule 1-A guidance · IRS Rev. Proc. 2025-32 · SSA Contribution & Benefit Base
Disclaimer
Estimates for general information only, not tax advice. The IRS occupation list for qualified tips and the detailed Schedule 1-A rules continue to develop. Consult a qualified tax professional.