Are tips taxable?

Yes. All tips are taxable income. Cash tips, card tips, your cut of a tip pool, tips handed to you by another server, and even non-cash tips with real value are income you owe tax on. There is no dollar floor below which a tip stops being taxable, and the 2025 "no tax on tips" law did not change that — it added a deduction, not an exemption.

That is the short answer. The useful answer is which taxes apply, what your employer already takes care of, and what is left sitting on you.

Which taxes apply to tips

• Federal income tax. Tips are ordinary income at your normal bracket. For tax years 2025 through 2028, many tipped workers can deduct up to $25,000 of qualified tips, which can wipe out the federal income tax on tips entirely — see No Tax on Tips, explained.
• Social Security and Medicare (FICA). 7.65% as an employee, 15.3% as a self-employed 1099 worker. The tips deduction does not reduce this. For most tipped workers, FICA is the tax that never goes away.
• State income tax. Zero in states like Texas, Florida, and Tennessee; mid-single digits in most others. Your state's approximate rate is on its pay by state page.

What is already withheld, and what is not

This is the split that catches people out:

• Card tips usually flow through your employer's payroll. They show up on your paycheck, and income tax and FICA are typically withheld before you see the money.
• Cash tips go straight into your pocket. Nothing is withheld. Unless you report them to your employer, no tax is collected on them all year — and the balance is due at filing.

So the practical question is rarely "are tips taxable." It is "how much of my cash did I quietly borrow from next April's tax bill?"

What you are required to report

If you take in $20 or more in tips in a month at one job, you must report that month's tips to your employer in writing, generally by the 10th of the following month. Your employer then withholds on them and includes them on your W-2. Details, deadlines, and the forms are in reporting tips to your employer.

Tips below that monthly threshold still go on your tax return — the $20 rule governs the report to your employer, not whether the income is taxable.

Where tips land on your W-2

Reported tips are folded into Box 1 and appear again in the Social Security and Medicare boxes. Box 8, "allocated tips," is the one that surprises people: it is a formula-generated figure with no tax withheld, and your own daily record is what stands against it. See tip income and your W-2.

How much to set aside

Rule of thumb: 20% to 30% of tips, moved into a separate account on payday and left alone. Go toward the top of that range — or above it — if you are a 1099 delivery or rideshare driver, because you owe the full self-employment tax and nobody is withholding anything. For a number closer to your situation, run the tax set-aside calculator or read how much to save for taxes on tips.

The record is the whole game

Every question above — what you owe, what you report, whether Box 8 stands, whether you qualify for the tips deduction — is settled by whether you kept a contemporaneous daily record of what you actually made. A tip log written as you went is the strongest evidence there is; a reconstruction done in April is the weakest. How to track cash tips covers the 30-second habit, and Tipfolio exists to make that habit take no thought at all.

This is general information, not tax advice. Rules change and individual situations differ — confirm yours with a tax professional.