Guides / Tip-outs

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

A tip-out is the part of your tips you pass to the people who helped you serve, like bussers and bartenders. Houses usually set it as a percent of your sales or a percent of your tips, and the two behave very differently on a slow night. The money you tip out isn't your income: you report and pay tax only on the tips you keep.

Percent of tips vs percent of sales

With a percent of tips tip-out, you give up a fixed share of whatever you made. A good night costs more in dollars, a bad night costs less, and the share never changes.

With a percent of sales tip-out, you owe a share of your food and drink sales no matter what your guests tipped. The dollar amount tracks how busy you were, not how well you were paid for it.

Here are the same $1,500 in sales on two nights, once with a 20 percent of tips tip-out and once with a 3 percent of sales tip-out:

On the good night the sales-based tip-out is cheaper. On the bad night it takes 30 percent of your tips, twice its share on the good night and more than the 20 percent tip-out. The tip-out calculator runs both ways with your own numbers.

Why sales-based tip-outs are riskier for you

The risk sits entirely with the server. A table that leaves nothing on a $200 check still costs you $6 at 3 percent of sales. A night of large checks with small tips can push your tip-out past a third of what you made. If the house counts comped items or discounts as sales, ask, because that changes the number you owe.

The worst case is a tip-out larger than your tips, which means you're paying it out of your wages. Federal rules push back on that in two ways. Wages have to be paid "free and clear," and the minimum wage isn't met if you kick part of your wages back to your employer or to someone else for the employer's benefit. And when your employer takes a tip credit (pays a cash wage below the minimum wage and counts your tips toward the rest), the DOL's handbook says tips you put into a mandatory pool can't lower your pay below the minimum wage. Only the tips you keep count. If what you keep plus your cash wage falls short of the minimum wage for the week, your employer has to make up the difference. Nobody flags this for you, so keep your own numbers.

Who usually gets tipped out

Tip-outs usually go to the people who help you serve the guest. Who is allowed to get one depends on how you're paid.

• If your employer takes a tip credit, a required tip-out or pool can include only employees in jobs that customarily and regularly get tips. The DOL's examples are servers, counter staff who serve customers, bellhops, bussers, service bartenders, barbacks, sommeliers and sushi or teppanyaki chefs. Its examples of who can't be included are janitors, dishwashers, chefs and cooks, prep cooks, salad preparers and laundry room attendants. Runners and hosts aren't named on either list, so it comes down to what the job actually involves.
• If your employer pays everyone a cash wage of at least the federal minimum wage ($7.25) and takes no tip credit, it can require you to share with staff who don't usually get tips, such as cooks and dishwashers.
• Never your employer, and never managers or supervisors. See Can a manager take your tips?

Tip pooling rules covers who counts as a manager and how state rules change the list.

What the law says about mandatory tip-outs

A required tip-out is a form of mandatory tip sharing, and federal law treats it under the same rule as a tip pool (29 CFR 531.54). The main points under the Fair Labor Standards Act (FLSA):

• Your employer can require you to share tips with other eligible employees.
• Federal law sets no cap on the percentage or amount you can be required to contribute.
• If your employer takes a tip credit, it has to tell you the required contribution amount.
• Your employer can't keep any part of your tips for any purpose, and can't let managers or supervisors keep any part. That rule applies whether or not it takes a tip credit.
• If your employer collects tips to redistribute, it has to pay them out no later than the regular payday for the workweek they were collected, or as soon as practicable after that payday if it can't work out the amounts before payroll.

When a state rule differs, your employer has to follow whichever standard protects you more. Some states go further than federal law. In Delaware, an employer can't force a pool, except that where several employees serve the same customer it may require sharing of up to 15 percent of the primary server's tips. Minnesota employers can't require employees to share tips or join a pool. In New Hampshire, pooling or sharing has to be voluntary. Your state's rule is on your state page, for example Delaware; start at tipped minimum wage by state.

Tip-outs and your taxes

IRS Publication 531 is direct about this. If you're in a tip-splitting or tip-pooling arrangement, you report only the tips you receive and keep. Don't report to your employer, and don't put on your tax return, any tips you pass on to other employees. The busser or bartender who receives your tip-out reports it as their tips.

Using the good night above with the 20 percent tip-out: you made $300 and paid $60, so you report $240. The busser reports the $60. If you report the full $300, you pay tax on $60 that was never yours. Reporting tips to your employer covers the monthly report.

Keep a record of every tip-out

The IRS says your daily tip record should include the tips you paid out to other employees through pools, tip splitting or other arrangements, and the names of the employees you paid. That record is what backs up a reported number lower than your card tips.

Your employer keeps records too. If it takes a tip credit, or collects tips to run a required pool, federal rules require it to record the weekly or monthly tips you report, and payroll records have to be kept at least 3 years. Your own record is still the one you control. Save tip-out slips or photograph them, and write down the sales figure the tip-out was based on. Cashout logs each shift's cash tips, card tips and tip-out and shows what you kept (see tip tracking), or use the tip log template.

Common questions

Can my employer make me tip out?

Under federal law, yes, as long as the money goes only to eligible coworkers and never to the employer, a manager or a supervisor. A few states, including Minnesota and New Hampshire, don't let employers require it.

Is there a legal limit on how much I can be made to tip out?

Not under federal law. The limit that does apply: if you're paid with a tip credit, what you keep plus your cash wage has to reach the minimum wage. Delaware caps required sharing at 15 percent of the primary server's tips in the situation described above.

Do I pay tax on the money I tipped out?

No. You report only what you keep. The person who receives it reports it.

Can the kitchen be part of my tip-out?

Only if your employer takes no tip credit and pays everyone at least the federal minimum wage in cash, and only if your state allows it. If you're paid a tipped cash wage, cooks and dishwashers can't be in a required tip-out.

My tip-out was more than my tips. Is that legal?

If it brought your pay for the week below the minimum wage, your employer owes you the difference. If it's happening regularly, see Tip theft: what to do.

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