Do I have to pay taxes on my cash tips?
The short answer
Step by step
Say in March you took home $600 in cash tips and $900 in card tips, and tipped out $150 in cash to your busser (illustrative).
- Each shift: write down the date, cash tips, card tips, and what you tipped out and to whom.
- By April 10: report the tips you kept for March to your employer: $600 + $900 − $150 = $1,350. Use your employer’s system, or a signed, dated statement.
- On payday: your employer withholds income tax, Social Security, and Medicare on the $1,350 from your wages. If your wages are too small to cover it, see Why is my server paycheck so small?
- At tax time: your reported tips are on your W-2. Any tips you didn’t report go on your return too.
Not tax or legal advice. The numbers are made up.
Plain English
What counts as taxable tips
IRS says you include in income all tips you receive directly, card tips your employer pays you, and your share of a tip-splitting or tip-pooling arrangement. Non-cash tips, like tickets or passes, are income too. Cash isn’t treated differently from card tips.
The three things IRS asks you to do
- Keep a daily tip record. A tip diary, or copies of bills and card slips. See How do I keep track of my tips?
- Report tips to your employer. Cash, check, and card tips, for any month they reach $20 or more from that job. Due by the 10th of the next month. Report only what you kept after tipping out, plus tips other employees give you. See Do I pay tax on tips I tip out?
- Report all your tips on your tax return. Reported tips are already in your W-2 wages. Tips you didn’t report to your employer still go on your return.
If you didn’t report some
You still owe the tax, and a penalty can apply. See What happens if I don’t report my cash tips?
What about No Tax on Tips?
The federal tip deduction is a separate question from whether tips are taxable. See How does No Tax on Tips work? and Do I still pay Social Security and Medicare on tips?
Common mistakes
- Thinking cash tips aren’t taxable because they never hit a paycheck.
- Reporting what you collected instead of what you kept after tip-outs.
- Forgetting tips other servers or bartenders passed to you.
- Skipping the monthly report because you’ll “sort it out at tax time.”
Official sources
Last verified:
Checked IRS Publication 531 (revised December 2024): all tips are income, what goes in the daily record, the $20 monthly rule, the 10th-of-the-month deadline, and how to report. Checked IRS Topic 761 on employer withholding on reported tips.