Reporting cash tips

Card tips mostly look after themselves: they run through the point-of-sale, land on your payroll, and appear on your W-2 whether you think about them or not. Cash is different, and it is where most tipped workers' records quietly fall apart.

The obligation, in plain terms

Cash tips are income. There is no threshold below which a tip stops being income, and no version of the rules in which cash is treated as a gift.

Separately from that, there is a reporting step to your employer. The general shape of it: if you receive $20 or more in tips in a calendar month at one job, you are required to report those tips to that employer in writing, usually by around the 10th of the following month. Your employer then withholds on them and includes them in your wage reporting.

Two things people get wrong about that threshold:

• It is per employer, per month — not per shift, and not across all your jobs combined.
• Falling under it removes the reporting-to-employer step, not the fact that the money is income on your return.

What a daily tip record should contain

Tipped employees are expected to keep a daily record of tips received. In practice that means, for each shift:

• the date of the shift;
• cash tips received directly from customers;
• card and charged tips;
• tips paid out to other employees, and to whom;
• the name of the employer, if you work more than one job.

Keep the record as you go. A log written on the night is worth more than the same numbers assembled later, for the same reason a photograph is worth more than a description. How to make that a habit →

Service charges are not tips

An automatic gratuity on a party of eight, a mandatory event fee, a delivery charge set by the house — these are generally service charges, not tips. They are typically treated as wages, come to you through payroll, and are handled differently for tax purposes.

They are also frequently muddled together with voluntary tips in people's own records, which causes two problems at once: the totals stop reconciling with payroll, and the portion that might qualify for the tip deduction becomes impossible to isolate. Log them separately.

Checking your W-2

When your W-2 arrives, compare the tip figure on it against your own log for the same year. Three outcomes:

What you see	What it usually means
They broadly agree	Good. File, and keep the log.
The W-2 is lower than your log	Something you reported may not have made it through payroll. Ask before you file — the difference is income you still need to report.
The W-2 is higher than your log	Often service charges being included, or an allocation. Worth understanding rather than accepting silently.

You can only run this check if you kept your own figures. Without a log there is nothing to compare against, and the employer's number simply becomes the truth by default.

If your records are already patchy

Start now rather than trying to fix the past. Reconstruct what you genuinely can from bank deposits, schedules and payroll records, mark it clearly as reconstructed, and keep it separate from entries made on the night. Then keep a proper daily record going forward.

A record that honestly says "these three months were rebuilt from statements, the rest were logged nightly" is far stronger than a uniform file that implies a diligence that did not exist.

If your position is complicated — several years of gaps, a large discrepancy with an employer, or a notice you have already received — talk to a tax professional rather than working it out from an article.

Questions