Each example follows Schedule 1-A Part II exactly, and the tips calculator reproduces each result.
Example 1: server near the cap
A server reports $23,400 of tips on her W-2, single, MAGI $68,000. Under the $25,000 cap and under the phase-out threshold: deduction $23,400.
Example 2: two earners, one cap
A couple both work tipped jobs and report $40,000 of tips between them on a joint return, MAGI $120,000. The cap is per return, not per person: deduction $25,000. This is the most common surprise in the tips rules.
Example 3: the phase-out
A bartender reports $25,000 of tips, single, MAGI $200,000. Excess over $150,000 is $50,000, which is 50 full thousands. Reduction: 50 x $100 = $5,000. Deduction: $20,000. The fraction is dropped: MAGI of $150,900 would still count as zero full thousands over, and no reduction.
Example 4: the service-charge zero
A banquet server’s W-2 shows $6,000 passed through from the venue’s mandatory 20 percent service charge, and nothing else. Mandatory charges are not qualified tips: deduction $0. If guests had voluntarily added $800 on top of the charge, that $800 would qualify.