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Withholding and Form W-4
Income tax your employer takes from each paycheck and sends to the IRS, in an amount set by the Form W-4 you give your employer.
Form W-4, the Employee's Withholding Certificate, is how you tell your employer how much federal income tax to withhold from your pay. Withholding isn't an extra tax. It's a prepayment that counts against your bill when you file.
Parts of the 2026 form that matter for tipped workers:
- Step 2: for holding more than one job at a time, or a spouse who works.
- Step 4(b): deductions. The 2026 worksheet asks for an estimate of your qualified tips, up to $25,000, and covers qualified overtime, so withholding can reflect those deductions during the year.
- Step 4(c): extra tax withheld each pay period, a simple way to cover a 1099 side gig.
Your employer withholds on the tips you report, but only out of the pay it has. With a low cash wage, it applies your pay to taxes on your regular wages first, then Social Security and Medicare on tips, then income tax on tips. Unpaid tax can come out of your next check, and Social Security and Medicare it never collects show in W-2 box 12, codes A and B.
Common mistake: putting a rough guess of No Tax on Tips into step 4(b). If you overestimate your tips, or the deduction phases out for you, too little is withheld and you owe in April. Use the estimator at irs.gov/W4App, and file a new W-4 when your situation changes.
Related terms
Form W-2 · Quarterly estimated tax · Estimated tax safe harbor · Reported tips
