How to Track and Report Tips: Tax Tips for Server

How to Track and Report Tips: Tax Tips for Server Key Takeaways

• Maintain a daily log of all tips, including cash, credit card, and shared tips
• Report tips of $20 or more per month to your employer by the 10th of the following month
• All reported tips appear on Form W-2 and must be accurately reconciled on your tax return
• The "No Tax on Tips Act" allows a cash tip deduction of up to $25,000 in tax years 2025-2028 for qualifying workers

As a server, accurate tip tracking and reporting are crucial for tax compliance and avoiding penalties.

This guide explains daily record keeping, employer reporting, tax return filing, and recent tax law changes affecting tipped income.

1. Daily Tip Record-Keeping for Servers

Accurately maintaining a daily record of all tips you receive is the foundation of compliant tip reporting. Your log should document the date, total tip amount, and any tips you share with coworkers.

The IRS no longer issues Form 4070A for daily tip reporting as of 2024. Instead, you can use a personal notebook, spreadsheet, or digital app to track your tips.

Having detailed daily records ensures you can report correct amounts to your employer and the IRS, and it provides useful documentation in case of audits or discrepancies.

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2. Reporting Tips to Your Employer

If you receive $20 or more in tips during a calendar month, you must report the total amount to your employer by the 10th day of the following month.

This report must include your:

• Name and address
• Social Security number
• Employer's name and address
• The period covered
• Total tips received

Your employer uses this information to withhold the correct federal income, Social Security, and Medicare taxes from your paycheck based on your reported tips.

Failing to report tips can lead to penalties. The IRS may charge a penalty equal to 50% of the Social Security and Medicare taxes owed on unreported tips, so timely reporting is critical.

Employers looking for guidance on their role can check tax tips for restaurant owners which covers employer tax responsibilities on reported tips.

3. Reporting Tips on Your Tax Return

All tips you report to your employer will appear on your Form W-2 at the end of the year. It is important to ensure that your tax return reflects the same tip income as on the W-2.

If you have unreported tips not submitted to your employer, you must include them on Form 4137, "Social Security and Medicare Tax on Unreported Tip Income," when filing your tax return.

This form calculates additional Social Security and Medicare taxes due on the unreported tips, helping you comply with IRS regulations.

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4. The "No Tax on Tips" Act: What Servers Need to Know

In July 2025, the "No Tax on Tips Act" was signed into law, providing new tax relief for workers in tipped occupations.

From tax years 2025 through 2028, servers can deduct up to $25,000 of cash tip income from their federal taxes.

This deduction phases out for single filers earning over $150,000 and married couples filing jointly earning over $300,000.

Note that this deduction only applies to cash tips; electronic or other non-cash tips are excluded.

Further guidance from the U.S. Treasury and IRS on qualifying occupations and implementation is forthcoming.

More details on this legislation and its impact on the industry can be found in No Tax on Tips.

5. Employer Responsibilities in Tip Reporting

Employers must:

• Collect and maintain accurate tip reports from employees
• Withhold federal income, Social Security, and Medicare taxes based on reported tips
• Pay the employer's share of Social Security and Medicare taxes on wages and reported tips
• Report wages and tip income to the IRS using Form 941, "Employer's Quarterly Federal Tax Return"

Employers may also qualify for a tax credit on the employer's share of FICA taxes paid on certain employee tips, encouraging proper reporting and compliance.

Restaurant owners should visit our restaurant owner responsibilities spotlight to learn about crucial employer duties.

6. Best Practices for Servers to Track and Report Tips

To ensure tax compliance and avoid penalties, servers should follow these best practices:

• Keep a detailed daily log of all tips received, including amounts shared with colleagues
• Report tips of $20 or more to your employer promptly by the 10th of the following month
• Review your year-end Form W-2 for accuracy and reconcile with your personal records
• Use Form 4137 to report any unreported tip income on your tax return
• Stay informed about new tax laws such as the 'No Tax on Tips Act' that may affect your reporting and deductions

Being diligent with your records and communication helps maintain compliance and safeguards your income.

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7. Useful Government Resources for Server Tip Reporting

For comprehensive information and IRS forms related to tip reporting and tax compliance, servers can consult the following resources:

• IRS Publication 531: Reporting Tip Income
• IRS Topic No. 761: Tips – Withholding and Reporting
• IRS Form 4137: Social Security and Medicare Tax on Unreported Tip Income

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How to Track and Report Tips: Tax Tips for Server Conclusion

For servers, carefully tracking and reporting all tip income is essential for meeting IRS requirements and avoiding penalties.

Maintain daily records, timely report tips to your employer, reconcile your tax returns, and stay current with changes such as the 'No Tax on Tips Act'.

Using proper documentation and following employer guidelines creates transparency and protects your earnings.

Employers can find valuable advice on how to hire servers and waiters to ensure their team complies with reporting and operational best practices.