How much to save for taxes on tips

A safe rule of thumb is to set aside 20% to 30% of your tips for taxes. Where you land in that range depends on your total income and your state. For a closer number, use the tax set-aside calculator, which adds a rough federal rate, FICA, and your state's income tax.

Are tips taxable?

Yes. All tips are taxable income, including cash. Card tips usually run through your employer and show up on your paycheck with tax already withheld. Cash tips are different: it is on you to track and report them, and no tax is withheld as you go. That is why cash tips are the ones people get surprised by at tax time.

What makes up the rate?

• Federal income tax depends on your bracket. For many tipped workers the effective rate lands in the low teens after the standard deduction.
• FICA (Social Security and Medicare) is 7.65% for employees. Gig workers who get a 1099 owe the full 15.3% as self-employment tax.
• State income tax ranges from 0% in states like Texas and Florida to mid-single digits in most others.

A simple system that works

Every payday, move your set-aside percentage into a separate savings account and do not touch it. If you are a W-2 server whose card tips are already withheld, focus the set-aside on your cash tips. If you drive for a delivery app, set aside more, because you owe the full self-employment tax and nothing is withheld.

Get a year-end number you can hand off

Tipfolio keeps a running set-aside total from your logged tips and exports a clean CSV or PDF at tax time, so you or your preparer are not reconstructing a year from memory.

This is general information and an estimate, not tax advice. Confirm your numbers with a tax professional.