I’m a server. After tip-outs, how much is mine, and which number do I report?

Example math

Friday night: $2,000 in sales, $360 in tips ($300 on cards, $60 cash). Your house splits the tip-out three ways. Here are two ways a house might set it up, side by side.

Now a slow Tuesday: $1,000 in sales, and a big table left nothing, so you made $25 in tips. Under the same illustrative 3%-of-sales rule, the tip-out is $30, which is $5 more than you made in tips. With a tips-based rule, the tip-out can never be bigger than your tips.

Still being verified: whether a sales-based required tip-out that exceeds tips received raises an FLSA issue

Over the year, say you collect $26,000 in tips and tip out $4,500.

1. 1Tips you kept = $26,000 − $4,500 = $21,500. That’s your reportable number.
2. 2$21,500 is under the $25,000 cap. Assume your income is under the phase-out.
3. 3Say your marginal rate is 12% (illustrative; enter your own). Illustrative federal income-tax savings ≈ $21,500 × 0.12 = $2,580.
4. 4The $4,500 you tipped out belongs to the busser, bar, and runners. They report it as their tips. Social Security and Medicare still apply to your $21,500.

Not tax or legal advice. The percentages above are made up for the example. Use your own house’s numbers.

Plain English

The number that’s yours

For taxes, IRS Publication 531 is direct about it: if you share tips, report only what you receive and keep. Don’t report the part you pass on to other employees. Your W-2 for 2026 should show your reported tips in box 12 with code TP, and that amount is what you use to figure the deduction on Schedule 1-A Part II.

Your daily record should show what you collected, what you tipped out, and who got it. If your house pays the runner and busser out of your card tips, write down their names and amounts anyway. That’s your proof that the number you reported is the number you kept.

The wage-law trap: sales-based tip-outs on a slow night

Federal wage law lets your employer require you to tip out or pool tips, and it doesn’t cap how much. What it forbids is your employer keeping any part of your tips, directly or through the pool.

A tip-out figured on sales is where servers get squeezed. On a slow night, a percentage of sales can be more than you actually made in tips. Federal guidance doesn’t address the sales-vs-tips base directly. Two rules still hold either way:

• Your employer can’t keep any part of your tips, and managers can’t take a share. See What if my employer keeps part of the tips?
• If you’re paid the $2.13 federal tipped cash wage instead of the full $7.25, your employer must tell you the required tip-out amount, and can count toward your minimum wage only the tips you end up keeping.

For more on the sales-based setup, see My tip-out is a percentage of my sales, not my tips. Your state may have stricter rules.

The tax trap: reporting what you collected

If you report $26,000 when you kept $21,500, you pay income tax on money that went to other people, and the same $4,500 gets reported twice: once by you, once by the staff who received it. Whose tips count for the deduction is covered in If I tip out bussers or the bar, whose tips count?