How to claim no tax on tips and overtime on your 2026 return

Who qualifies

Tips count when they are voluntary cash or card tips, including tips shared with you, received in an occupation on the IRS list of jobs that customarily received tips. A mandatory service charge added to the bill is not a tip.

Overtime counts only for the part above your regular rate that the federal law (FLSA) requires: the half of time and a half, for hours over 40 in a workweek. Overtime that only a state law requires, such as daily overtime in California, does not count.

For both, the person who received the pay needs a Social Security number valid for work, and a married couple must file a joint return. The deductions apply to tax years 2025 through 2028.

Sources: IRS, occupations that customarily received tips; U.S. Department of Labor, Fact Sheet #23: Overtime Pay Requirements of the FLSA; IRS, questions and answers on the deduction for qualified overtime compensation

How much you can deduct

Tips: up to $25,000 on any return, joint included. Overtime: up to $12,500, or $25,000 on a joint return. Both shrink by $100 for each full $1,000 of modified adjusted gross income (MAGI) over $150,000, or $300,000 on a joint return.

Overtime example: 300 overtime hours in the year at a regular rate of $22. The qualified part is half of $22 for each hour, $11 × 300 = $3,300, so the deduction is $3,300. In the 12% bracket it saves about $396.

Tips example: $8,000 of qualified tips and an income under the limit. The deduction is $8,000, which saves about $960 in the 12% bracket.

Sources: IRS, What to know about the No Tax on Overtime deduction

Where the amounts are on your W-2

From tax year 2026, employers must report these amounts separately. On the 2026 Form W-2, box 12 with code TT is the total qualified overtime compensation, and box 12 with code TP is the total of cash tips reported to the employer. Box 14b holds the Treasury Tipped Occupation Code of your job.

For tax year 2025, employers did not have to report them separately, so many workers worked the amounts out from their pay stubs.

Sources: IRS, 2026 General Instructions for Forms W-2 and W-3; IRS, questions and answers on the deduction for qualified overtime compensation

Where it goes on the return

Both deductions are claimed on Schedule 1-A (Form 1040), Additional Deductions. On the 2026 draft of the schedule, Part II is no tax on tips and Part III is no tax on overtime. The total of the schedule goes to Form 1040, line 13a. Line numbers can change when the IRS publishes the final form.

You can take them whether you itemize or take the standard deduction.

Sources: IRS, 2026 Schedule 1-A (Form 1040), draft; IRS, What to know about the No Tax on Overtime deduction

What it does not change

The deductions lower federal income tax only. Tips and overtime are still wages for Social Security and Medicare taxes and for income tax withholding. State income tax follows your state rules.

Sources: IRS, What to know about the No Tax on Overtime deduction