What’s a tip-out, and how is it different from a tip pool?
The short answer
Example math
Same Friday, two setups. Say you collect $400 in tips.
Tip-out. Say your house has you tip out the busser 10% of your tips (illustrative only).
- Tip-out = $400 × 0.10 = $40 to the busser.
- You keep $400 − $40 = $360. That’s the number you report.
- The busser reports the $40 as tips they received.
Tip pool. Say every server’s tips go into one pot, and the pot for the night is $1,200. The house formula gives you a $300 share (illustrative only).
- You put in $400 and get back $300.
- You report $300, the share you kept.
- Everyone else in the pool reports their own share.
Either way, the same dollars get reported once, by the person who ends up with them.
Not tax or legal advice.
Check your estimate
Enter the tips you kept after tip-outs, not the whole pool. If you receive tip-outs, enter what you received and reported, plus your own direct tips.
Open the calculator
Plain English
Two ways to share the same money
- Tip-out (tip splitting): you earned the tips, and you pass part of them on, for example a share to the busser at the end of a shift.
- Tip pool: tips from a group go into one pot, and the pot is split by a formula your workplace sets, such as by hours or points.
The line between them is blurry in real life. For the federal rules below, both work the same way.
Federal wage law: your employer can require it
Federal wage law lets employers require you to share or pool tips with other eligible employees. Who counts as eligible depends on your cash wage:
- If you’re paid a tipped cash wage below $7.25 an hour, a required pool can include only workers in customarily tipped jobs, like servers, bussers, and service bartenders.
- If everyone gets at least $7.25 an hour in cash wages, a required pool can also include cooks and dishwashers.
Details are in Can my employer make me tip out or join a tip pool?
Wage law also treats the split money as tips of whoever keeps it. When a server gives part of their tips to a busser, the part the server keeps is the server’s tips, and the part the busser gets is the busser’s tips.
For taxes: report what you keep
- If you tip out, report only the tips you receive and keep. Don’t report the part you pass on.
- If you receive tip-outs, you must report them. They count as your tips.
- Keep a daily record of what you paid out and who you paid it to.
Money you receive from a tip pool or tip-out can count toward the federal tip deduction. Whose tips count is covered in If I tip out bussers or the bar, whose tips count for the deduction?
There’s no standard percentage
No federal rule sets how much a tip-out should be. The percentages on this page are made up to show the math. Your house sets its own.
Common mistakes
- Reporting the full amount you collected before tip-outs.
- Receiving tip-outs in cash and not reporting them because “they’re from coworkers, not customers.”
- Not writing down who you tipped out and how much.
- Assuming a tip pool and a tip-out follow different federal tax rules. They don’t.
Official sources
Last verified:
Checked DOL Fact Sheet #15 on tip pooling, the federal tip-pooling regulation (29 CFR 531.54), IRS Publication 531 on tip-splitting and tip-pooling, and the IRS tip recordkeeping page.