Tax Tips for Tipped Workers: What You Need to Know

Tax season is stressful for everyone, but it's especially tricky when a big chunk of your income comes from tips. Here's what you actually need to know — no jargon, no complexity.

The basic rule

All tips are taxable income. Cash, credit, shared — all of it. The IRS knows about your credit card tips (your employer reports them), but cash tips are on you to report. Read our breakdown of cash vs credit tips for more detail.

How much to set aside

A good rule of thumb: set aside 15-20% of your tip income for taxes. If you made $3,000 in tips this month, put $450-600 in a separate savings account.

TipTracker can calculate this automatically — just set your tax rate in Settings, and the dashboard shows you exactly how much to set aside each month.

Keep records

The IRS recommends keeping a daily tip record. You need: date, amount, and ideally a cash vs. credit breakdown. This is exactly what tip tracking does for you.

Report tips to your employer

If you receive more than $20 in tips in a month, you're required to report them to your employer by the 10th of the following month.

Common mistakes to avoid

• Not reporting cash tips. It's tempting, but it's illegal and the penalties are steep.
• Not setting money aside. April comes fast. Use our budgeting guide to plan ahead.
• Not keeping records. "I think I made about $30,000 in tips" won't cut it if you get audited. Track daily.

The bottom line

Taxes on tips aren't complicated — they're just easy to ignore. Set your tax rate, check the number on your dashboard each month, and move that amount to savings. Future you will thank you.