Employees must report cash tips to their employer in writing by the 10th of the month after they receive them, whenever they total $20 or more in a month from that employer. For IRS purposes, "cash tips" also includes tips paid by credit card, debit card, check, gift card, or payment app. Employers then include those tips on the W-2 and withhold tax on them.
Key takeaways
- Cash tips include card and app tips, not just paper money.
- Report them by the 10th of the following month if they're $20+ in a month. No specific form is required.
- Tips you didn't report to your employer go on Form 4137 with your Form 1040.
- Employers put reported tips in W-2 Boxes 1, 5, and 7, and from 2026 also in Box 12 code TP, with the TTOC in Box 14b.
What counts as a cash tip?
The IRS defines cash tips as tips paid in cash or a cash medium of exchange, including checks, credit cards, debit cards, gift cards, readily exchangeable tokens such as casino chips, and electronic or mobile payment apps denominated in cash (https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting). Tip-pool distributions are tips too. Non-cash tips, like event tickets, are income but aren't reported to the employer.
Employees: how to report cash tips
- Keep a daily tip record (IRS Publication 531 describes how).
- Give your employer a written, signed report by the 10th of the following month. It must include your name, address, SSN, the employer's name and address, the period covered, and total cash tips.
- Report all tips on your Form 1040. Use Form 4137 for any tips you didn't report to your employer and for allocated tips in W-2 Box 8.
Not reporting tips to your employer can bring a penalty of 50% of the Social Security and Medicare tax on those tips (https://www.irs.gov/publications/p531).
Employers: your cash tip obligations
- Keep employees' tip reports and withhold income tax plus the employee share of Social Security and Medicare on reported tips.
- Pay the employer share of Social Security and Medicare on reported tips.
- Include reported tips in W-2 Boxes 1, 5, and 7, and enter any uncollected employee tax in Box 12 (codes A and B).
- Starting with 2026 Forms W-2: report the total cash tips employees reported to you in Box 12 with code TP, and the Treasury Tipped Occupation Code(s) in Box 14b (https://www.irs.gov/instructions/iw2w3).
- If you run a large food or beverage establishment, file Form 8027 and allocate tips when reported tips fall below 8% of gross receipts (https://www.irs.gov/instructions/i8027).
- Food and beverage employers may claim the FICA tip credit on Form 8846 (https://ttoccodes.com/blog/fica-tip-credit-claim-and-maximize-benefits).
Are credit card tips considered cash tips?
Yes. The IRS includes tips paid by credit card, debit card, check, gift card, and payment app in the definition of cash tips. They must be reported to your employer like paper cash and count toward the $20 monthly threshold.
When are cash tips due to my employer?
By the 10th day of the month after you received them. For example, August tips are due by September 10. If the 10th falls on a weekend or legal holiday, the next business day works. Employers may require more frequent reports.
Do I pay self-employment tax on unreported tips?
Not if you're an employee. Employees pay the employee share of Social Security and Medicare on unreported tips using Form 4137. Self-employment tax applies to tips received by self-employed workers, who report them as business income on Schedule C.
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.