Yes. Servers must claim all tips as income on their tax return, including cash tips, credit card tips, and tip-pool shares. Cash tips (which include card tips) must also be reported to the employer by the 10th of the following month whenever they total $20 or more in a month.
Key takeaways
- All tips are taxable income. There is no exclusion for small or cash tips.
- Cash tips of $20+ in a month from one employer must be reported to that employer by the 10th of the next month.
- Tips under $20 in a month still go on your tax return; they're just not reported to the employer.
- Servers are occupation 102 (Wait Staff), which is on the Treasury list, so qualified tips can be deductible up to $25,000 for 2025–2028.
What servers must report
| Type of tip | Report to employer? | Report on tax return? |
|---|---|---|
| Cash left on the table | Yes, if $20+ that month | Yes |
| Tips added on a credit or debit card | Yes (they count as cash tips) | Yes |
| Tips received from a tip pool or tip-out | Yes | Yes |
| Non-cash tips (for example, tickets) | No | Yes, at fair market value |
| Mandatory service charges | No (they're wages paid through payroll) | Included in your W-2 wages |
How to report tips to your employer
The report must be in writing, but no specific IRS form is required; Form 4070 is now historical. It must include your signature, your name, address, and Social Security number, your employer's name and address, the period covered, and the total cash tips. It's due by the 10th of the month after you received the tips, moved to the next business day if the 10th falls on a weekend or holiday (https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting).
What happens on your W-2 and tax return
- Tips you reported to your employer are included in W-2 Boxes 1, 5, and 7. Starting with 2026 forms, they also appear in Box 12 with code TP, and your occupation code goes in Box 14b.
- Tips you didn't report to your employer go on Form 4137, attached to Form 1040, so you pay Social Security and Medicare tax on them (https://www.irs.gov/forms-pubs/about-form-4137).
- If you work at a large restaurant, your employer may allocate tips to you in Box 8. Report them on Form 4137 unless your records show you received less (https://ttoccodes.com/blog/allocated-tips-vs-unreported-tips-form-8027).
The No Tax on Tips deduction for servers
- Deduct up to $25,000 of qualified tips per year, for tax years 2025 through 2028.
- The deduction phases out once modified adjusted gross income (MAGI) is over $150,000, or $300,000 on a joint return.
- Qualified tips are voluntary cash or charged tips from customers, including tips received through tip sharing. Mandatory service charges don't count.
- The occupation must be on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024.
- You need a valid Social Security number, and married taxpayers must file jointly.
- It is available whether you itemize or take the standard deduction. You claim it on Schedule 1-A (Form 1040).
- It reduces federal income tax only. Social Security and Medicare taxes (7.65% for employees) still apply to tips.
Example: a server with $22,000 of reported tips and $35,000 of wages, filing single, can deduct the full $22,000 of qualified tips on Schedule 1-A. The server still pays 7.65% Social Security and Medicare on the tips ($1,683).
Do servers have to report credit card tips?
Yes. The IRS treats credit and debit card tips as cash tips. They count toward the $20-a-month threshold, must be reported to your employer by the 10th of the following month, and are included in your W-2 wages.
What if I made less than $20 in tips in a month?
You don't have to report tips under $20 in a month to that employer, and they aren't subject to Social Security and Medicare withholding. They're still taxable income, so include them on your Form 1040.
What happens if a server doesn't claim all their tips?
You'll owe the tax anyway, plus interest. Not reporting tips to your employer can also bring a penalty of 50% of the Social Security and Medicare tax owed on those tips. Unreported tips also don't build your Social Security record.
This article is general information, not tax advice. Rules can change; confirm your situation with the current IRS instructions linked above or a tax professional.