Tips & Overtime Tax Exemption Calculator
The OBBBA exempts up to $25,000 of tip income and all overtime pay from federal income tax. Calculate your savings here.
First $25,000 is exempt from federal income tax
All overtime pay is excluded from federal income tax
Enter your tip and overtime income to calculate your OBBBA tax savings.
Who Qualifies for the Tips & Overtime Tax Exemption?
The OBBBA tip income exemption applies to employees in industries where tipping is customary — restaurants, hotels, casinos, salons, rideshare, and similar service industries. Tips received by employees and reported on your W-2 (Box 7) are eligible. Tips that you failed to report to your employer do not qualify.
The overtime exemption applies to hours worked beyond 40 per week compensated at the FLSA overtime rate (1.5x). Both provisions are new for tax year 2025 and apply on your federal return. Your state may or may not conform — check the state conformity tracker.
The $25,000 Tips Cap
The exemption is capped at $25,000 of annual tip income. If you earn $40,000 in tips, the first $25,000 is exempt and the remaining $15,000 is taxed normally. For most tipped workers earning under $25,000 in tips, the exemption applies to all tip income.