Tip Income Calculator

How the Tip Income Calculator Works

Plug in four numbers (hours worked this period, your cash wage per hour, total tips you collected, and the amount you tipped out to support staff). The calculator returns your gross earnings, your effective hourly rate, and an estimated take-home figure after FICA and federal income tax. The math is simple: cash wages (hours times wage) plus net tips (tips received minus tip-out) equals gross. Divide gross by hours and you get the number that actually matters when comparing two restaurants, two sections, or two shifts.

If you also work non-tipped overtime hours at a second job, pair this with the overtime pay calculator for a clearer picture of your weekly total. The blog post on how to read a pay stub walks through every line item this tool estimates, so you can match the calculator's output to what shows up on payday.

2026 "No Tax on Tips" Deduction Explained

The One Big Beautiful Bill Act (OBBBA) created a federal income tax deduction of up to $25,000 per year for voluntary cash tips earned by workers in IRS-qualified occupations. Treasury's published list covers about 70 Tipped Occupation Codes: servers, bartenders, hairdressers, golf caddies, taxi and rideshare drivers, valets, manicurists, and more. That $25,000 is a per-return cap that does not rise for joint filers, and it is available for tax years 2025 through 2028. You need a Social Security number valid for employment, and married taxpayers have to file jointly: married filing separately is excluded entirely, which is why picking MFS above drops the deduction to $0.

Crossing $150,000 of modified adjusted gross income (single or head of household), or $300,000 filing jointly, does not disqualify you. It starts a phase-out that removes $100 from the deduction for every full $1,000 you are over. Partial thousands are ignored, because the statute reduces the deduction per $1,000 without the phrase "or fraction thereof" that other provisions use to round up. A single filer at $162,400 MAGI is 12 complete thousands over, so the deduction drops by $1,200 to $23,800, not by $1,240. The steps run the deduction down to $0 at $400,000 single and $550,000 joint. The calculator applies the cap first and then the phase-out, which is the order the statute sets, and it uses your annualized earnings here as the MAGI estimate, so add other household income yourself if the phase-out matters to you.

Two important caveats. First, the deduction reduces federal income tax only. Social Security and Medicare (FICA, 7.65%) still apply to every reported tip, including the ones covered by the deduction. Second, starting with 2026 W-2s, employers have to report your Treasury Tipped Occupation Code in Box 14b and qualified tip amounts in Box 12 with code "TP" so the IRS can verify eligibility. ClockWage44 logs tips on every shift so your own records line up with what your employer reports at year-end (download the app to get started).

Federal Tipped Minimum Wage, Tip Credit, and the Top-Up Rule

Under the Fair Labor Standards Act, employers can pay tipped workers as little as $2.13 per hour in direct cash wages and claim a tip credit of up to $5.12 per hour against the $7.25 federal minimum wage. If your cash wages plus tips do not average at least $7.25 per hour for the workweek, your employer has to make up the difference in the same pay period. The calculator flags this with a warning when your combined rate falls below $7.25 per hour.

Seven "One Fair Wage" states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) do not allow the tip credit at all, so tipped workers in those states have to be paid the full state minimum wage in cash before tips. Many other states set tipped minimums above the $2.13 federal floor, so check your state's rate before you trust the default.

Tip-Out, Tip Pools, and What Counts as a "Tip"

You are only taxed on the tips you actually keep, so subtract any tip-out paid to bussers, bartenders, food runners, or barbacks before you report tips to your employer. A valid tip pool reduces both your reportable tip income and your FICA exposure on those dollars. The calculator's "Tip-out paid to others" field handles this for you.

Service charges are a different animal. A mandatory 18% auto-gratuity on a large party is a service charge, not a tip, so it gets taxed as regular wages and does not qualify for the "No Tax on Tips" deduction. Same goes for the kitchen appreciation fee or the credit-card surcharge some restaurants tack on. Pair this calculator with the paycheck checkup guide if your withholding looks off and you want to dig into why.