Server Tip OutHow to Calculate Taxes on Tips (2026): A Server's Guide
This guide is general information written by a server, for servers. It isn't tax or legal advice. Rules change, so check IRS.gov or talk to a tax preparer about your own situation.
- Every tip you keep is taxable income: Social Security (6.2%), Medicare (1.45%), federal income tax, and state income tax if your state has one.
- Only count the tips you keep after tip-out. What you pass to bussers, runners and the bar is taxed on their side, not yours.
- For 2025 through 2028, the no tax on tips deduction can wipe out federal income tax on up to $25,000 of tips. Social Security and Medicare still apply.
- Report tips to your employer by the 10th of the following month whenever they hit $20 or more in a month.
If your paycheck has ever come back as $0.00, you've already seen how taxes on tips work. Your restaurant withholds the taxes on your tips out of your hourly pay, because your tips mostly went home in your apron or got paid out on your card that night. Here's how to figure out what you actually owe, step by step, with real numbers.
Step 1: Start with the tips you kept
Your taxable tips are your total tips minus your tip-out. IRS Publication 531 says that when you split or pool tips, you report only the part you keep. So if you made $300 on a Friday and tipped out $45, your taxable tips for that shift are $255.
The easiest way to get that number every night is to run your shift through the tip-out calculator and write down the "Net Take-Home Tips" figure.
Step 2: Add up the four taxes
| Tax | Rate on your tips | Notes |
|---|---|---|
| Social Security | 6.2% | Applies to every reported tip dollar |
| Medicare | 1.45% | Applies to every reported tip dollar |
| Federal income tax | 0%–37% | Depends on your total income; most servers land in the 10% or 12% bracket |
| State income tax | Varies | Florida, Texas, Nevada and a few others have none |
Social Security and Medicare together are 7.65%. That part is flat: $100 in kept tips always means $7.65 in payroll tax. Federal income tax is the part that changes with your income, deductions and filing status.
Step 3: Work out your federal income tax
Federal income tax isn't charged on every dollar. You subtract your standard deduction first, then the rest goes through the tax brackets. For 2026, the standard deduction is $16,100 if you're single, $24,150 for head of household and $32,200 for married filing jointly. For a single filer, the first $12,400 of taxable income is taxed at 10% and the next part, up to $50,400, at 12%.
Worked example: a full-time server in Florida
Say you're single, you earned $17,000 in hourly wages for the year, and you kept $24,000 in tips after tip-out.
| Without tip deduction | With tip deduction | |
|---|---|---|
| Wages + kept tips | $41,000 | $41,000 |
| Social Security + Medicare (7.65%) | $3,136.50 | $3,136.50 |
| Minus standard deduction | −$16,100 | −$16,100 |
| Minus no tax on tips deduction | $0 | −$24,000 |
| Taxable income | $24,900 | $900 |
| Federal income tax | $2,740 | $90 |
| Total federal tax | $5,876.50 | $3,226.50 |
In this example the tip deduction saves about $2,650, and almost all of what's left is Social Security and Medicare. Your own numbers will be different. The No Tax on Tips calculator runs the 2026 brackets for you.
Quick rule of thumb for each shift
If you want a fast number at the end of the night:
- Payroll tax: multiply your kept tips by 0.0765. On $200 kept, that's about $15.30.
- Federal income tax: if your total yearly income is under the standard deduction plus your qualified tips, you may owe little or none. If not, budget 10%–12% of the tips above that line.
- State tax: check your state's rate if you're not in a no-income-tax state.
Why your paycheck is tiny (or $0)
When you report tips, your employer has to withhold Social Security, Medicare and income tax on them. Since the tips themselves already went home with you, those taxes come out of your hourly pay. On a tipped base wage, that often eats the whole check.
If your wages aren't enough to cover the Social Security and Medicare owed on your tips, the shortfall shows up on your W-2 in Box 12 with codes A and B (uncollected Social Security and Medicare on tips). You pay that amount when you file, so don't be surprised by it.
How and when to report tips
- If your tips at one job add up to $20 or more in a month, report them to your employer by the 10th of the next month (the next business day if the 10th lands on a weekend or holiday).
- Most restaurants have you declare cash tips in the POS when you clock out. That counts as your report.
- Keep a daily tip log: cash tips, card tips, what you tipped out and to whom. The IRS recommends it, and it's your proof if your W-2 numbers ever look wrong.
- Cash tips you didn't report during the year go on Form 4137 with your tax return.
Get your take-home tips for tonight
Enter your card tips, cash tips, hours and tip-out percentage. You'll get the exact kept-tips number to write in your tip log.
Frequently asked questions
How much tax do servers pay on tips?
At least 7.65% for Social Security and Medicare on every tip you keep. On top of that comes federal income tax (often 10% or 12% for servers) and any state income tax. For 2025 through 2028, the no tax on tips deduction can remove the federal income tax on up to $25,000 of qualified tips.
Do I pay tax on the tips I tip out?
No. When you share or pool tips, you report only the tips you keep. The busser, runner or bartender who receives your tip-out reports it as their own tip income.
Are cash tips taxed the same as credit card tips?
Yes. Cash and card tips are both taxable income. Card tips are recorded automatically; cash tips are taxed once you report them to your employer or on Form 4137.
Why is my paycheck $0 as a server?
Your employer withholds the taxes on your reported tips from your hourly wages. Because your tips were already paid out to you, a small tipped paycheck can be used up entirely by those taxes.
Do I have to report tips under $20?
If your tips from one job total less than $20 in a month, you don't have to report them to that employer. They're still income, though, and belong on your tax return.