Cash Tips vs Credit Card Tips Tax: What You Need to Know
Small-Business Columnist · 7/14/2026
For tax years 2025–2028, what's the difference between cash tips and credit card tips tax? The No Tax on Tips deduction applies to cash tips, reducing federal income tax only, with no distinction made between cash and credit card tips. Report cash tips of $0+ per month per employer to your employer.
Cash Tips vs Credit Card Tips Tax: What's the Difference?
The No Tax on Tips deduction applies to cash tips, reducing federal income tax only, with no distinction made between cash and credit card tips. Report cash tips of $0+ per month per employer to your employer. Employers must use the Treasury Tipped Occupation Codes (TTOC) to report tips of $0+ per month per employee to the IRS on Form 8027, as specified in the IRS publication about Form 8027 (https://www.irs.gov/forms-pubs/about-form-8027).
Form 8027 is used by large food and beverage establishments to report employee tip income. Employers must report tips of $0+ per month per employee to the IRS on Form 8027. This is in accordance with the Treasury Department's guidelines for large food and beverage establishments (https://home.treasury.gov/).
The Treasury Tipped Occupation Codes (TTOC) are reported in W-2 Box 14b. Employers must report the TTOC in W-2 Box 14b to accurately report employee tip income. According to the IRS, the W-2 form is used to report employee wages and other compensation (https://www.irs.gov/forms-pubs/about-form-w-2).
How Much Tax Do You Pay on Cash Tips vs Credit Card Tips?
The No Tax on Tips deduction caps at $25,000 of qualified tips per year, with a phase-out above $150,000 Modified Adjusted Gross Income (MAGI). FICA (7.65%) still applies to tips, regardless of whether they're cash or credit card tips.
FICA (7.65%) still applies to tips, regardless of whether they're cash or credit card tips. According to the IRS, the FICA tax rate is 7.65% (https://www.irs.gov/taxtopics/tt401).
Form 4137 is used to report unreported tip income, which may be subject to penalties and interest. Employers must report tips of $0+ per month per employee to the IRS on Form 8027, as specified in the IRS publication about Form 8027 (https://www.irs.gov/forms-pubs/about-form-8027).
Key Takeaways
Key Takeaways
- * The No Tax on Tips deduction applies to cash tips, reducing federal income tax only.
- * FICA (7.65%) still applies to tips, regardless of whether they're cash or credit card tips.
- * Report cash tips of $0+ per month per employer to your employer.
Frequently Asked Questions
What is the No Tax on Tips deduction?
The No Tax on Tips deduction reduces federal income tax only for cash and credit card tips.
How do I report cash tips to my employer?
Report cash tips of $0+ per month per employer to your employer.
What is Form 8027 used for?
Form 8027 is used by large food and beverage establishments to report employee tip income.
Table: FICA Tax Rate
| FICA Tax Rate | Year |
|---|---|
| 7.65% | 2025–2028 |