How To Calculate Taxes On Tips

When it comes to calculating taxes on tips, there are a few things you need to keep in mind. Tips are considered income, just like wages, and are subject to both federal and state taxes. Here’s a breakdown of how to calculate taxes on tips:

What are Tips?

Tips are voluntary payments given to service workers, such as servers, bartenders, and hairdressers. They are usually given in cash, but can also be included in credit card payments. Tips are usually given as a way to show appreciation for good service.

Why are Tips Taxable?

Tips are considered income and are therefore subject to federal and state taxes. The Internal Revenue Service (IRS) requires all employees to report their tips as income on their tax returns. This means that tips are subject to both income tax and payroll tax.

How to Calculate Taxes on Tips

Calculating taxes on tips can be a bit tricky, as it depends on how much you earn in tips and how much you earn in wages. Here’s a step-by-step guide on how to calculate taxes on tips: 1. Keep track of your tips: It’s important to keep accurate records of all the tips you receive. This will make it easier to report them on your tax return. 2. Determine your total income: To calculate your taxes on tips, you first need to determine your total income. This includes both your wages and your tips. 3. Calculate your taxes: Once you know your total income, you can calculate your taxes using the tax brackets for your income level. The IRS provides a tax bracket calculator that can help you determine your tax rate. 4. Deduct your expenses: You may be able to deduct certain expenses related to your job, such as uniforms and equipment. These deductions can lower your taxable income and reduce your tax bill.


Do I have to report all my tips?

Yes, you are required to report all the tips you receive as income on your tax return. This includes tips that are given in cash as well as those that are included in credit card payments.

How do I report my tips?

You can report your tips on Form 1040, Schedule C, or Form 1040, Schedule C-EZ. These forms are used to report self-employment income, which includes tips earned as a service worker.

What if my employer doesn’t report my tips?

If your employer doesn’t report your tips, you are still required to report them as income on your tax return. You may also want to file a complaint with the Department of Labor’s Wage and Hour Division.


Calculating taxes on tips can seem daunting, but it’s an important part of being a service worker. By keeping accurate records and reporting all your tips as income, you can ensure that you are in compliance with federal and state tax laws. So next time you receive a tip, remember to keep track of it and report it on your tax return.