UnderCover Waitress: Question About Cash Tips

Tuesday, October 16, 2012

Question About Cash Tips

Ask the Waitress!

"I recently started working as a waitress and i am new to this whole reporting my tips thing. How do most waitresses keep track of their cash tips in order to report them on their yearly taxes? am i supposed to just keep a sheet at home and record what i made in cash tips every time?
Also i am confused about the credit card tips that are reported on my check? do i pay taxes on those credit card tips? can i expect my paycheck to fluctuate bi weekly depending on how much i get paid in credit card tips?"

First, workers in the fifty states are required to report all income to the IRS. Income does include cash tips.

This waitress seems to be working in a restaurant that keeps track of her credit card tips for her, but not her cash tips. The credit card tips are included in her paycheck. I strongly suggest to anyone in this situation that you check your paystub or ask your employer whether the taxes are being taken out of the credit card tips for you. You don't want to pay tax twice on credit card tips.

Let's assume that the restaurant is taking out taxes on credit card tips and paying employees what they are owed via paychecks every two weeks. To answer one of the questions above, Yes, your paycheck amount will vary. You should receive a base wage (that may be below minimum wage, depending upon what state you are working in) plus the credit card tips earned during the pay period.

If you get to pocket and take home cash tips at the end of each shift, then Yes, you must keep track of them. Just get a notebook and write down the date and your cash tips. (Hint, hint: I sell notebooks for this very purpose with suggested categories in the Under Cover Waitress Shop.) If you participate in tip pooling, or are required to pay tip outs to bussers, bartenders, or other employees, you should NOT be paying tax on money paid out to others. In other words, you should only pay tax on the money you get to bring home and spend.

Under the above scenario, when you file your taxes you will include your cash tips on a different line than your paycheck income. If the restaurant is removing taxes from your credit card tips, then you will not need to worry about reporting credit card tips separate from your paycheck. If the restaurant is NOT taking out taxes on credit card tips, then you may use your paystubs as a way to keep track of credit card tips. You will need to report them to the IRS when you pay taxes.

I hope that all makes sense and is helpful. Thanks for asking the waitress!


  1. I'm having a headache just thinking of the math!

    1. No kidding! Most places (in my experience) just give waitress' all their tips at the end of the shift, whether the system is computerized or not. Tipped workers are responsible for all tax on tips, which is easier than the situation described above, which is unnecessarily complicated.


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