Tip reporting
Tip reporting is how tips reach payroll: employees report them to you each month, and you withhold on them and report them as wages.
- LAW
- 26 U.S.C. §6053, reporting of tips
- LIMIT
- $20 or more in tips a month, per employer
- DEADLINE
- The 10th of the month after the tips
- WATCH FOR
- Service charges are wages, not tips
An employee with $20 or more in tips in a month from one job reports them to you. The report is due by the 10th of the next month. Cash, check, debit card, and credit card tips all count, plus tips received through a tip pool. You withhold income tax, Social Security, and Medicare on reported tips and pay your employer share. Tips count as paid when the employee reports them. You report them on Form 941Form 941. Form 941 (Employer’s Quarterly Federal Tax Return) reports wages paid, federal income tax withheld, and both shares of Social Security and Medicare tax.Click to open the term and Form W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term.
What goes in the monthly tip report?
Without an electronic system of your own, the employee gives you a signed, dated statement. It lists the employee’s name, address, and SSN, your name and address, the period covered, and the total tips. Service charges you add to a bill are wages, not tips, and they go through normal payroll.
- Cash tips from customers
- Tips paid by check
- Debit and credit card tips
- Tips received from other employees through tip sharing
- Tips passed on to other employees
- Noncash tips, such as tickets or passes
- Tips under $20 in a month from one job
- Service charges you add, such as an automatic gratuity
What do you do with reported tips?
Withhold from the employee’s wages or other funds the employee makes available, never from the tips themselves. When funds are still short by the 10th of the month after the report, you no longer have to collect the shortfall.
- 01
Collect the report by the 10th of the month after the tips, or the next business day when the 10th is a weekend or legal holiday.
- 02
Withhold in order when wages run short: taxes on regular wages first, then Social Security and Medicare on tips, then income tax on tips.
- 03
Deposit and file on your deposit schedule, with tips on Form 941, lines 5b and 5c.
- 04
Report uncollected tax on Form W-2, box 12, code A for Social Security and code B for Medicare, with a negative adjustment on Form 941, line 9.
When do you have to allocate tips?
A large food or beverage establishment files Form 8027 each year. Located in the 50 states or DC, it serves food or beverages on the premises, not fast food, and tipping is customary. It also normally had more than 10 employees on a typical business day the year before. You allocate tips when the total reported in a payroll period falls below 8% of gross receipts, or an approved lower rate. Allocated tips go on Form W-2 without withholding.
Frequently asked
- 26 U.S.C. §6053, Reporting of tips
- Publication 15 (2026), (Circular E), Employer’s Tax Guide
- Publication 531 (12/2024), Reporting Tip Income
- General Instructions for Forms W-2 and W-3 (2026)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.