For you / Servers

By NorseHorse. Updated October 16, 2026. General information, not legal or tax advice.

How servers get paid

A server's money comes from two places: an hourly cash wage from the restaurant and tips from guests. Federal law lets an employer pay a tipped worker as little as $2.13 an hour and count up to $5.12 an hour of your tips toward the $7.25 minimum wage. That $5.12 is the tip credit. If your cash wage plus tips comes up short for a workweek, the employer has to make up the difference on the regular payday.

States can be stricter. The Department of Labor lists Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington among the states that require the full state minimum wage before tips. Many others allow a tip credit but set a higher cash wage. Look up your state on the tipped minimum wage page.

Tip-outs and tip pools

Most restaurants have you tip out the bar, bussers, runners or hosts, or they pool tips. When your employer takes a tip credit, a mandatory pool can include only employees who customarily and regularly receive tips, such as servers and bartenders. Cooks and dishwashers can share in a pool only when the employer pays the full minimum wage and takes no tip credit. Either way, employers, managers and supervisors can't keep any part of your tips.

For taxes, the IRS says to report only the tips you receive and keep. If you walk with $300 and tip out $45, the tips you report are $255. The tip-out calculator does the math.

Card tips, auto-gratuities and service charges

Card tips usually reach you on your paycheck. Your employer may take the card company's processing fee out of a card tip, but no more than the actual fee.

An automatic gratuity on a large party isn't a tip. Federal law treats a required charge, such as 15 percent added to the bill, as a service charge, and the IRS says service charges paid to you are wages. That matters for 2026: service charges and auto-gratuities don't count for the tips deduction, even when the restaurant hands every cent to you. The exception is a charge the guest is expressly told they can change or remove.

Your 2026 taxes as a server

Every tip is taxable income. When your tips at one job reach $20 or more in a month, you report them to your employer by the 10th of the next month, and the employer withholds Social Security, Medicare and income tax on them out of your pay. A $2.13 paycheck often can't cover that. Social Security and Medicare tax your employer couldn't collect shows up on your W-2 in box 12 with codes A and B, and you pay it when you file. The guide to reporting tips covers the details.

No Tax on Tips

Wait staff are on the Treasury's list of tipped occupations as code 102. Bartenders are 101, bussers fall under 104 (dining room attendants and bartender helpers), and host staff are 109. For 2025 through 2028 you can deduct up to $25,000 a year of qualified tips, and the deduction phases out once your modified adjusted gross income passes $150,000 ($300,000 on a joint return).

For 2026 the tips have to be on paper. Your W-2 now shows the cash tips you reported to your employer in box 12 with code TP, and your occupation code in box 14b. Tips you never reported only count if you report them yourself on Form 4137. The deduction lowers federal income tax only: Social Security (6.2 percent) and Medicare (1.45 percent) still apply to every reported tip. Read the No Tax on Tips guide and what box 12 code TP means, or try the No Tax on Tips calculator.

Tip allocation

At a larger restaurant that files Form 8027, if the tips everyone reports come to less than 8 percent of sales, the employer may have to allocate the difference to directly tipped staff, and your share appears in W-2 box 8. Nothing is withheld on allocated tips. You report them on Form 4137 unless you have records showing you got less. A daily log is how you show that. See tip allocation and Form 8027.

What to track

The IRS says your daily tip record should cover cash tips from guests or other employees, card tips your employer pays you, and the tips you paid out to others. In practice, that means:

• Hours and your hourly rate for each shift.
• Cash tips and card tips, kept separate.
• What you tipped out, and to whom.
• The tips you actually reported to your employer.
• Auto-gratuities and service charges, apart from tips, since they're wages.
• Your pay stubs, so you can check them against your shifts.

The server's tax guide walks through what to set aside, and the tip tax calculator estimates federal, payroll and state tax on your pay and tips.

How Cashout helps

Cashout is free, works offline, and doesn't need an account. All of this is on Android and iPhone unless noted.

• Shifts. Log hours, hourly rate, Cash Tips, Card Tips and Tip Out on each shift, and see your Effective Rate, what the shift paid per hour after tip-out. On Android, Start shift times the shift and you add tips when you end it; the timer is coming to iPhone. See the shift tracker.
• Sections. Tag each shift with the section you worked and see tips by section.
• Tip Reporting. Compares the tips you earned with the tips you reported, by month. On Android it uses the reported tips you enter on each shift; on iPhone it counts your card tips as the reported amount. More on tip tracking.
• Paycheck Check. Enter a pay stub and Cashout compares it with the shifts you logged for that period. On Android it checks wages plus reported tips and weekly overtime. The current iPhone version tends to flag tipped workers' stubs as a mismatch even when they're right, so read its flags with that in mind. See Paycheck Check.
• Taxes and Tax Savings. Estimates federal income tax, Social Security and Medicare, and state tax for all 50 states and DC, and suggests what to set aside after each shift. It doesn't include the No Tax on Tips deduction yet; use the calculator for that. See tax estimates.
• Overtime. Tracks hours against 40 a week. It covers federal weekly overtime only, not daily overtime.
• Export Shifts. A CSV or PDF of your shifts for any date range, plus a year-end tax summary PDF.

What it doesn't do: there's no separate field for auto-gratuities or service charges, so don't enter them as tips; put them in the shift's notes. Cashout doesn't connect to your POS or payroll and doesn't report anything to anyone.

Common questions

Do I report tips before or after tip-out?

After. The IRS says to report only the tips you receive and keep, so subtract what you paid out to the bar and support staff.

Does No Tax on Tips cover the 18 percent auto-gratuity on big parties?

No. A mandatory charge added to the bill is a service charge, which is wages, and it isn't a qualified tip even if you get all of it.

What if my tips don't bring me up to minimum wage in a slow week?

Your employer has to make up the difference for that workweek on the regular payday. Your shift log is how you show it. The hourly rate calculator shows what a week really paid.

Track it all with Cashout. Shifts, tips, unpaid breaks, taxes, and mileage, logged in seconds. iPhone · Android