How much is the tips deduction actually worth?

Both tables are for a single filer taking the standard deduction. The row is wage income excluding tips; the column is qualified tips for the year. Tips are includible in gross income, so total income, and the modified AGI the phase-out runs on, is the row plus the column. A worker with $60,000 of wages and $20,000 of tips has $80,000 of income for this purpose.

The first table shows the deduction the law allows. The second shows what that deduction saves in federal income tax, computed as the difference between tax with and without it on the 2026 brackets and standard deduction. Figures in the second table are the money; the first table is only the input to it.

Read across any row and the deduction stops climbing at $25,000. Section 224 caps it there per return, and unlike the overtime deduction it does not double on a joint return, so a two-earner tipped household shares one cap. Every dollar of tips past the cap is taxed like ordinary wages.

In the four lower rows, the $30,000 column and the $25,000 column carry the same deduction. The tax saved is not always the same, because the extra $5,000 of non-deductible tips is still income and can push part of it into a higher bracket.

The bottom row is the only one in the phase-out band. Above $150,000 of modified AGI the allowed deduction drops by $100 for every full $1,000 of income, and it is gone entirely at $400,000.

That produces the one result in these tables that looks like a mistake and is not. On the $160,000 row, tips of $25,000 allow a deduction of $21,500, while tips of $30,000 allow only $21,000. Earning $5,000 more in tips lowered the deduction by $500. Once you are at the cap, additional tips add nothing deductible but still add to MAGI, and every full $1,000 of MAGI in this band costs another $100 of deduction. The extra tips still leave the worker ahead in cash; they just carry more tax than the first $25,000 did.

Compare two cells with an identical $20,000 deduction. At $30,000 of wages it saves $2,400. At $100,000 of wages the same deduction saves $4,400, roughly 1.8 times as much.

Nothing about the tips changed. A deduction comes off the top of your income, so it is worth whatever rate applies to your last dollars, which is why the same headline benefit lands very differently across the rows. It is also why a deduction is not the same thing as a credit, and why "no tax on tips" does not mean the tips arrive untaxed.

• Federal income tax only. Publication 15 states that "tips are still generally subject to both the employer share and employee share of social security tax and Medicare tax if the tips received are $20 or more per month." None of the savings above reduce FICA, and self-employment tax applies to self-employed tip income the same way.
• State income tax. The tables are federal. State income tax, where it applies, follows the state's own rules, and this site's state pages do not model a state version of the deduction.
• Single filers only. Joint returns use the same $25,000 cap but a higher phase-out threshold and wider brackets, so both tables would look different. Married filing separately gets nothing at any income.
• Qualifying is assumed. Every cell assumes the tips are qualified tips in a listed occupation. What counts is covered in the tips deduction explainer .
• Estimates. These are planning figures on published 2026 tables, computed from wages and tips alone with no other adjustments, deductions, or credits. Not tax advice, and not your withholding.