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Tips
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Business
Seventy-two guides about what to leave, and one page about what happens to it afterwards
This section holds a single collection. The Tips collection is 72 guides answering one question each, and between them they cover almost every situation in which an American is asked to tip: restaurants, delivery apps, salons, hotels, movers, tattoo artists, wedding vendors, cruise ships, and the tablet that spins around at a counter.
Every one of those guides is written for the person holding the card. This page is written about everyone else in the transaction. Once a tip has been left, a long chain of federal and state rules decides who is allowed to touch it, what it does to the wage the employer owes, and how it is taxed. Almost none of that chain is visible from the customer side, and a good deal of what circulates about it online is out of date by a year or more.
What the collection hub already covers, so this page does not. The Tips hub owns the behavioral layer: what Americans actually do rather than what etiquette says, including the survey finding that two thirds of people cannot reliably tell when a tip is expected. This page owns the legal and tax layer, and names the document behind every figure.
How many people this is about
There is no official federal count of tipped workers. The Bureau of Labor Statistics counts occupations, not tipping status, so the closest thing to a total is an estimate built from survey microdata.
| Occupation | Jobs, 2024 | Median pay | Projected change to 2034 |
|---|---|---|---|
| Waiters and waitresses | 2,329,700 | $33,760 | Down 16,300 |
| Bartenders | 756,700 | $33,530 | Up 44,800 |
| Barbers, hairstylists and cosmetologists | 651,200 | $35,420 | Up 35,300 |
Bureau of Labor Statistics Occupational Outlook Handbook, all three pages last updated 28 August 2025, wage and employment data for 2024. These medians include reported tips, so they are not base wage figures. Waiters and waitresses is one of the larger occupations projected to shrink over the decade.
For a total, the most careful published estimate comes from the Budget Lab at Yale, a university policy center rather than a government agency: roughly 4 million workers in tipped occupations in 2023, about two and a half percent of all employment, built from Current Population Survey microdata. The same analysis found that 37 percent of tipped workers had incomes low enough that they owed no federal income tax in 2022, before accounting for tax credits. That figure matters a great deal for section 07.
Two numbers that have not moved in decades
Before anything else, the two figures the whole federal system runs on. The minimum cash wage an employer must pay a tipped employee has been $2.13 an hour since 1991. The threshold at which someone becomes a tipped employee at all has been more than $30 a month in tips since 1966. Neither is indexed to anything. A third frozen number turns up in section 09: the employer tip credit on payroll taxes is still calculated against a minimum wage of $5.15, a rate that stopped existing in 2007.
How a tip becomes part of the wage an employer owes, and the condition attached to it
The federal mechanism is called the tip credit, and the arithmetic is short. The federal minimum wage is $7.25 an hour. An employer may pay a tipped employee a direct cash wage as low as $2.13 an hour and count the tips the employee receives toward the remaining $5.12.
| Component | Amount | Who pays it |
|---|---|---|
| Federal minimum wage | $7.25 | The total the employee must end up with |
| Minimum direct cash wage | $2.13 | The employer |
| Maximum tip credit | $5.12 | The customer |
Figures from the Department of Labor Wage and Hour Division Fact Sheet 15, which states the arithmetic explicitly: the maximum tip credit that an employer can currently claim is $5.12 per hour, being $7.25 minus the $2.13 direct or cash wage.
The statute behind it is section 3(m)(2)(A) of the Fair Labor Standards Act, which fixes the cash wage at not less than the amount required on 20 August 1996, and caps the tip credit with a sentence that gets forgotten: The additional amount on account of tips may not exceed the value of the tips actually received by an employee.
The condition, which is where most disputes start
If the cash wage plus the tips actually received do not reach $7.25 for the hours worked, the employer must make up the difference. The tip credit is not a discount on the minimum wage. It is a claim that the customer already paid part of it, and the claim has to be true.
Two further conditions sit in the regulations at 29 CFR part 531, and both are commonly missed.
- The burden of proof is on the employer. Section 531.59 says that in order for the employer to claim the maximum tip credit, the employer must demonstrate that the employee received at least that amount in actual tips. Not the other way round.
- Notice is a precondition, not a courtesy. The same section requires the employer to inform the employee of the amount of the cash wage that is to be paid, and that all tips received must be retained by the employee except for a tip pooling arrangement. Without that notice there is no tip credit, and the full minimum wage is owed in cash regardless of how much was tipped.
Who counts as a tipped employee
The statutory definition at 29 U.S.C. 203(t) is one sentence: Tipped employee means any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.
The regulation adds a point that decides real cases. Section 531.56 says an employee must him or herself customarily and regularly receive more than $30 a month in tips in order to qualify. The test is individual, not establishment-wide. Working in a restaurant where tipping is normal does not make a particular employee a tipped employee.
Thirty dollars a month, set in 1966. Adjusted for nothing since, it now catches essentially anyone who receives tips at all. A worker who receives $31 in tips across a month is a tipped employee for federal purposes, and an employer may in principle drop their cash wage to $2.13 and rely on tips for the rest. The threshold was written to distinguish genuinely tipped occupations from incidental ones, and inflation has quietly removed the distinction.
The plain-English version of the mechanism, written for readers rather than for the regulation, is in the collection: how tip pooling, the tip credit and tip taxes work behind the scenes. This page is the document-level version.
The 80/20 rule is gone, and the date almost everyone publishes for it is wrong
For three years the most argued-about rule in this area was a stopwatch. A tipped employee also does side work: rolling silverware, cutting lemons, wiping down a station. The question is how much of that an employer can pay $2.13 an hour for.
The Department of Labor answered it in a rule effective 28 December 2021. If more than 20 percent of the workweek, or any continuous period over 30 minutes, went on work that supported tipped work rather than producing tips, the employer could not take the tip credit for that time. It became known as the 80/20 rule.
It no longer exists. The Fifth Circuit vacated it, the Department removed the text from the Code of Federal Regulations, and the regulation that governs today is the one written in 1967.
The sequence, because the details are routinely reported wrongly
| Date | What happened |
|---|---|
| 28 December 2021 | The Dual Jobs final rule takes effect, adding the 80 percent and 30-minute tests at 29 CFR 531.56(e) and (f). |
| 23 August 2024 | A Fifth Circuit panel reverses the district court and vacates the rule. This is the date most articles cite. |
| 29 October 2024 | The panel grants rehearing, withdraws the August opinion entirely and substitutes a narrower one. The mandate issues the same day. This is the operative decision. |
| 17 December 2024 | The Department publishes a technical amendment removing the vacated text from the CFR, effective immediately. |
Case: Restaurant Law Center and Texas Restaurant Association v. United States Department of Labor, Fifth Circuit, No. 23-50562, reported at 115 F.4th 396. Federal Register citation for the amendment: 89 FR 101884.
Why the withdrawal matters, and not only for pedantry
The substituted opinion is narrower than the one it replaced. The August version vacated the Final Rule. The October version vacated it insofar as it modifies 29 C.F.R. 531.56 as promulgated in 1967. That distinction decides what survived.
What was vacated: the 80 percent test and the 30-minute test, at 531.56(e) and (f). What was not vacated, and remains fully in force: the tip pooling rules, the prohibition on managers and supervisors keeping tips, and the civil money penalty provisions, all of which are section 04 of this page. A page saying the Department of Labor tip rule was struck down is describing something that did not happen.
The Department itself uses a careful citation form in the Federal Register that acknowledges the sequence: 115 F.4th 396 (5th Cir. 2024), superseded on reh'g (5th Cir. Oct. 29, 2024). And it states the operative date plainly: since the mandate issued on 29 October 2024, the operative version of 29 CFR 531.56(e) is the dual jobs regulation that was in place on 27 December 2021.
What the rule says now
The restored text is worth reading, because it is nearly sixty years old and reads like it:
In some situations an employee is employed in a dual job, as for example, where a maintenance man in a hotel also serves as a waiter. In such a situation the employee, if he customarily and regularly receives at least $30 a month in tips for his work as a waiter, is a tipped employee only with respect to his employment as a waiter.
29 CFR 531.56(e), as restored on 29 October 2024The test is occupational, not temporal. The question is which job the employee is doing, not what percentage of the shift went on which task. Paragraph (f), which held the percentage and the 30-minute cap, was removed from the CFR entirely.
The court reasoned that the time-based test can be found nowhere in the statute, and that the rule wrongly tied the tip credit not to the character of the duties but to the amount of time they took. It applied the standard set out in Loper Bright rather than deferring to the agency, which is why this case turns up in discussions that have nothing to do with restaurants.
The vacatur was not confined to the Fifth Circuit. The court vacated the rule rather than enjoining its enforcement against the plaintiffs, and the Department then removed the text from the Code of Federal Regulations for everyone. There is no version of the country in which the 80/20 rule still applies federally. Some states impose their own limits on side work, which is a separate question with a different answer in each of them.
The employer may not keep a tip, and the definition of manager is narrower than the tax one
In March 2018 Congress amended the Fair Labor Standards Act with one sentence, and it is the most important sentence in this topic:
An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees' tips, regardless of whether or not the employer takes a tip credit.
29 U.S.C. 203(m)(2)(B), added by the Consolidated Appropriations Act, 2018The load-bearing clause is the last one. Before 2018 the argument was that an employer paying the full minimum wage in cash had no tip credit to protect and could therefore do as it liked with the tips. That argument is now foreclosed by statute. A restaurant paying $20 an hour in cash still may not keep a cent of a tip.
The manager and supervisor test, and the part of it that is deliberately missing
The regulation at 29 CFR 531.52(b)(2) restates the prohibition and adds an exception with a sharp edge:
An employer may not allow managers and supervisors to keep any portion of an employee's tips, regardless of whether the employer takes a tip credit. A manager or supervisor may keep tips that he or she receives directly from customers based on the service that he or she directly and solely provides.
29 CFR 531.52(b)(2)Directly and solely. A manager who serves a table alone keeps that table tip. A manager who helps out on a busy section does not.
Who counts as a manager is defined by cross-reference to the executive exemption duties test at 29 CFR 541.100(a)(2) through (4): primary duty is management of the enterprise or a recognized department, customarily and regularly directs the work of two or more employees, and has authority to hire or fire or whose recommendations on hiring and firing are given particular weight.
Note which paragraph is not in that list. The cross-reference starts at (a)(2). Paragraph (a)(1), the salary threshold that decides whether someone is exempt from overtime, is deliberately excluded. So an hourly shift lead earning far below the exempt salary level can still be a manager or supervisor for tip purposes and barred from the pool. The two definitions of manager, one for overtime and one for tips, are not the same definition, and assuming they are is a common and expensive mistake.
Two kinds of tip pool, and the line between them
| Traditional pool | Non-traditional pool | |
|---|---|---|
| When it is allowed | Where the employer takes a tip credit | Only where no tip credit is taken |
| Who may be in it | Only employees who customarily and regularly receive tips | May include cooks, dishwashers and other back of house |
| The condition | The tip credit rules apply throughout | Every worker in the pool must receive a direct cash wage of at least $7.25 |
| Managers and supervisors | May not receive from the pool | May not receive from the pool |
From Fact Sheet 15 and 29 CFR 531.54. The Department has also clarified that while managers and supervisors may not receive from a tip pool, they are not prohibited from contributing to one.
Section 531.54 adds a deadline that is easy to breach without noticing: tips collected into a pool must be distributed no later than the regular payday for the workweek in which the tips were collected. Holding a pool back to settle it monthly, or to fund something else in the meantime, is a violation on its own.
What it costs to get this wrong
The civil money penalty for keeping tips sits at 29 CFR 578.3(a), adjusted annually for inflation.
| Violation | Penalty per violation | Condition |
|---|---|---|
| Keeping tips, section 3(m)(2)(B) | Up to $1,409 | No willfulness or repetition required |
| Minimum wage or overtime | Up to $2,515 | Only where repeated or willful |
Amounts from the Department of Labor civil money penalty inflation adjustment table, for penalties assessed on or after 16 January 2026. The tip-keeping penalty is unchanged from the previous year.
The asymmetry in the right-hand column is the point. A minimum wage penalty requires the Department to show the employer repeated the violation or acted willfully. The tip-keeping penalty carries no such requirement and applies per violation, which in a payroll context can mean per employee per pay period. Willfulness is defined separately at 578.3(c) as knowing the conduct was prohibited or showing reckless disregard, and it raises the ceiling rather than being a precondition.
Federal law lets an employer take the card processing fee out of your tip. Some states do not
Almost every tip is now left on a card, and every card transaction carries a processing fee. Whether that fee comes out of the tip is a question with a federal answer and a set of state answers that contradict it.
The federal position, from Fact Sheet 15, is that the deduction is permitted:
When tips are charged on customers' credit cards and the employer can show that it pays the credit card company a percentage on such sales as a fee for payment using a credit card, the employer may pay the employee the tip, less that percentage.
Department of Labor Wage and Hour Division, Fact Sheet 15Two limits are attached. The deduction must reflect the actual percentage the processor charges rather than a rounded-up house rate, and it may not reduce the wage below the required minimum. An employer cannot use processing fees to push an employee under $7.25.
California prohibits it outright
The California Division of Labor Standards Enforcement states the rule without qualification: the employer must pay the employee the full amount of the tip indicated on the credit card, and may not make any deduction for credit card processing fees. The authority is Labor Code section 351, which also prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for an employee by a patron, and which is the same section that gives California no tip credit at all.
A caution on how far to generalize. California is verified here. Several other states are widely reported to prohibit the deduction as well, and that may be correct, but it was not confirmed against a state labor agency for this page, so no list is given. The safe general statement is that federal law permits the deduction within limits and that state law can and in at least one large state does forbid it entirely. Check the labor department of your own state rather than a national summary.
Why this is the quietest transfer in the topic
A card processing fee is typically a small percentage. Applied to a tip rather than to the bill, and taken across every shift of every worker in an establishment for a year, it becomes a real number that nobody involved ever sees stated. It does not appear on a customer receipt, it is rarely itemized on a pay stub, and it is legal in most of the country. The guide to tipping with cash, card and gift cards covers the customer side of the same question, including why cash reaches a worker differently.
Eight jurisdictions have no tip credit, and two that were abolishing theirs changed their minds
The $2.13 federal cash wage is a floor, not a national rate. Where a state sets a higher figure the state figure applies, and eight jurisdictions require the full state minimum wage to be paid in cash before a single tip is counted.
Those are Alaska, California, Guam, Minnesota, Montana, Nevada, Oregon and Washington. In every one of them a tip is genuinely additional to the wage rather than a partial substitute for it. No state has been added to or removed from that group recently.
| Jurisdiction | Minimum cash wage before tips | Tip credit? |
|---|---|---|
| Washington | $17.13 | None |
| California | $16.90 | None |
| Oregon | $15.55 statewide, $16.80 Portland metro, $14.55 nonurban | None |
| Alaska | $14.00 | None |
| Nevada | $12.00 | None |
| Minnesota | $11.41 | None |
| Montana | $10.85 | None, for businesses over $110,000 gross sales |
| District of Columbia | $10.30 | Yes, and see below |
| Federal floor | $2.13 | Yes, up to $5.12 |
Department of Labor Wage and Hour Division, Minimum Wages for Tipped Employees, table effective 1 July 2026. The spread between the top and bottom rows is a factor of eight.
Washington DC did not eliminate its tip credit. It rewrote the schedule
This is the largest live misconception in the topic, and it is worth stating carefully because a great deal of published material still describes a schedule that no longer exists.
In 2022 District voters passed Initiative 82, the Tip Credit Elimination Act, which set out a march to parity: $12.00 an hour for tipped workers from 1 July 2025, $14.00 from 1 July 2026, and the full minimum wage from 1 July 2027. That schedule was displaced. An emergency amendment effective 30 June 2025 first suspended the increase, and the section as currently codified replaces the dollar schedule with a percentage one.
| Effective | Tipped cash wage under Initiative 82 as passed | Tipped cash wage under the law as it now stands |
|---|---|---|
| 1 July 2024 | $10.00 | $10.00 |
| 1 July 2025 | $12.00 | Suspended, then held |
| 1 July 2026 | $14.00 | 56% of the minimum wage, being $10.30 |
| 1 July 2027 | Full parity | No parity date exists |
| 1 July 2028 | 60% | |
| 1 July 2030 | 65% | |
| 1 July 2032 | 70% | |
| 1 July 2034 | 75% |
Percentage schedule from D.C. Code section 32-1003 as currently codified. The District Department of Employment Services published the 1 July 2026 rates as a rise in the general minimum wage from $17.95 to $18.40 and in the tipped base wage from $10.00 to $10.30. Check the arithmetic: 56 percent of $18.40 is $10.304, which is the published figure. The percentage schedule is the operative law.
Read the right-hand column to its end. Under the law as it stands the District of Columbia still has a tip credit in 2034, at 25 percent of the minimum wage, and the statute contains no date on which it reaches parity at all. A ballot measure to eliminate the tip credit produced, four years later, a schedule that preserves it indefinitely.
Michigan reversed a court-ordered phase-out and capped it at half
Michigan arrived at the same place by a different route. A phase-out was set in motion, then the legislature amended the underlying act in February 2025 and replaced it with a percentage schedule that stops well short.
| Effective | Tipped base wage as a percentage of minimum | Rate |
|---|---|---|
| 21 February 2025 | 38% | $4.74 |
| 1 January 2026 | 40% | $5.49 |
| 1 January 2027 | 42% | $6.30 |
| 1 January 2028 | 44% | |
| 1 January 2029 | 46% | |
| 1 January 2030 | 48% | |
| 1 January 2031 onward | 50% | The cap. It goes no higher. |
Michigan Department of Labor and Economic Opportunity minimum wage schedule posting. The state minimum wage runs $12.48 from 21 February 2025, $13.73 from 1 January 2026 and $15.00 from 1 January 2027. The underlying statute is the Improved Workforce Opportunity Wage Act, Public Act 337 of 2018, as amended in February 2025.
The pattern worth naming. Two jurisdictions set out to abolish the tip credit within the last four years and both stopped part way, in one case by ballot measure and legislative rewrite and in the other by court decision and legislative rewrite. Neither reversal is well covered, and both leave a great deal of published material describing schedules that were superseded. If you read that DC tipped workers get the full minimum wage in 2027, that was true of the law as passed and is not true of the law as it stands.
No tax on tips, stated precisely, which is not how it is usually stated
The 2025 tax law created a federal deduction for tips at a new section 224 of the Internal Revenue Code. It is real, it is worth money to a lot of people, and the four-word name describes something considerably narrower than it sounds.
The implementing regulations are final, not proposed. Treasury Decision 10044 was published in the Federal Register on 13 April 2026 and took effect on 12 June 2026. Proposed regulations circulated in September 2025 and much of the commentary online still describes those rather than the final rule.
| Feature | What it actually is |
|---|---|
| Maximum deduction | $25,000 in a taxable year |
| Years available | No deduction for any taxable year beginning after 31 December 2028 |
| Itemizing required? | No. Available to itemizers and non-itemizers |
| Phase-out begins | Modified adjusted gross income over $150,000, or $300,000 filing jointly |
| Social Security and Medicare tax | Completely unaffected |
| Self-employment tax | Completely unaffected |
| Which tips qualify | Cash tips in an occupation that customarily and regularly received tips on or before 31 December 2024 |
The sentence that changes the headline
From the final regulations, verbatim:
The deduction under section 224 does not apply for FICA purposes and is not taken into account in determining wages subject to FICA tax. Similarly, the deduction under section 224 does not apply for Self-Employment Contributions Act (SECA) purposes.
Treasury Decision 10044, Federal Register, 13 April 2026Tips remain fully subject to Social Security and Medicare tax. For a worker in the lower half of the income distribution, payroll tax is frequently the larger of the two federal taxes they pay. So the measure removes income tax on up to $25,000 of tips, for four tax years, above a floor of zero and below a ceiling of $150,000 of income, and leaves payroll tax entirely alone.
Put that beside the Budget Lab finding in section 01: 37 percent of tipped workers already owed no federal income tax before credits. A deduction against a tax you do not pay is worth nothing. That is not an argument against the provision, it is a description of who it reaches.
What counts as a qualified tip
Section 224 does not simply say tips. The payment must be one that, in the words of the statute quoted in the regulations, is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor. A mandatory service charge fails all three tests, which is section 08.
There is a second exclusion that catches people out. Tips received in the course of a specified service trade or business, the category borrowed from section 199A, do not qualify. That covers health, law, accounting, performing arts, consulting, athletics, financial services and brokerage.
The occupation list
Because the statute limits the deduction to occupations that customarily and regularly received tips on or before 31 December 2024, Treasury had to publish a list. The final regulations organize occupations into eight categories under Treasury Tipped Occupation Codes: beverage and food service, entertainment and events, hospitality and guest services, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery.
The Internal Revenue Service describes the final list as covering more than 70 separate occupations, from bartenders to water taxi operators. Occupations added between the proposal and the final rule include visual artists, floral designers and gas pump attendants. Note that the examples inside each code are illustrative rather than exhaustive, so a precise count of job titles is not a well-defined number, and any page giving one should be treated with suspicion.
The 2025 reporting problem, and the relief for it
The law arrived mid-year, and Forms W-2 and 1099 for tax year 2025 were never updated to carry a separate tip figure. The Service granted penalty relief in November 2025 for employers failing to provide a separate accounting of amounts designated as cash tips or the occupation of the person receiving them, and suggested voluntary reporting through online portals, separate written statements, or box 14 of the W-2.
For employees left to work it out themselves, the guidance points at three places to find the number: the social security tips figure in box 7 of the W-2, tips reported on Form 4070, and the amount on line 4 of Form 4137 filed with the return. The employee still carries the burden of establishing that the occupation qualified.
One line in that guidance draws the boundary this whole page is about. The Service states that its notice does not affect any rights or responsibilities regarding tips or overtime compensation under the Fair Labor Standards Act. The tax code and the labor code treat the same dollar under two separate regimes that do not talk to each other, which is why a payment can be a tip for one purpose and wages for the other.
An automatic 18 percent is not a tip in either body of law
The party of six gets an 18 percent gratuity added automatically. Most people assume that money is a tip that has simply been calculated for them. Under both the tax code and the labor code it is something else, and the consequences run in both directions.
The tax test: four factors, and all four must hold
Revenue Ruling 2012-18 sets out the factors that make a payment a tip rather than a service charge:
- The payment must be made free from compulsion.
- The customer must have the unrestricted right to determine the amount.
- The payment should not be the subject of negotiation or dictated by employer policy.
- Generally, the customer has the right to determine who receives the payment.
The absence of any one factor makes the payment a service charge, and a service charge distributed to an employee is wages. The ruling gives its own worked example: a restaurant whose menu specifies that an 18 percent charge will be added to all bills for parties of six or more. Because the customer did not have the unrestricted right to determine the amount, the 18 percent is not a tip.
The labor test says the same thing in older language
A compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer's establishment, is not a tip and, even if distributed by the employer to its employees, cannot be counted as a tip received.
29 CFR 531.55Fact Sheet 15 adds the practical half: sums distributed to employees from service charges are not tips, but may be used to satisfy the minimum wage and overtime obligations of the employer.
What actually follows from the reclassification
| Question | Voluntary tip | Automatic service charge |
|---|---|---|
| May the employer keep it? | No, by statute | Yes. Section 3(m)(2)(B) protects tips, and this is not one |
| Counts toward the tip credit? | Yes | No |
| If distributed, what is it? | A tip | Wages, which count toward minimum wage and overtime |
| In the regular rate for overtime? | No | Yes |
| Employee reports it as tip income? | Yes | No, it is already wages |
| A qualified tip for the new deduction? | Yes, if the occupation qualifies | No |
| Eligible for the employer payroll tax credit? | Yes | No |
Read that first row and then the third. An automatic gratuity is worse for the worker in one respect, because the statutory protection against an employer keeping it does not apply, and better in another, because whatever is distributed counts as wages toward the minimum wage and raises the overtime rate. It is not simply a tip with the arithmetic done for you. It is a different kind of money.
And it does not qualify for the new deduction. The Internal Revenue Service put this in plain words when the final regulations were issued: service charges automatically added without customer modification options do not qualify. A restaurant that converts voluntary tipping to a service-inclusive model removes its workers from section 224 entirely, whatever it pays them.
The customer-facing version of this distinction, including what to do when a gratuity has already been added to the bill, is in the guide to gratuity against tip and in the restaurant tipping guide.
The forms were retired. The obligations were not
Three separate reporting duties run on a tip: the employee reports to the employer, the employer reports to the Internal Revenue Service, and the employer claims a credit for the payroll tax it paid on money it never handled. Each has a threshold, and one of them is quietly obsolete.
Employee to employer: $20 a month, by the tenth
The rule is in Publication 531 and in Topic 761, last reviewed in June 2026. An employee who receives $20 or more in cash tips in a calendar month from one job must report the total to that employer, in writing, by the tenth day of the following month. Below $20 in a month from that job, no report to the employer is required, though the income is still taxable.
The form no longer exists and the duty is unchanged. Publication 531 records that Form 4070, Employee Report of Tips to Employer, and Form 4070A, the daily record, were made historical, and that Publication 1244, which contained them, has been made obsolete and will no longer be made available from 2024. What went away is the printed form. The requirement to keep a daily record of cash tips, card tips, noncash tips and amounts paid out through pooling, and to report monthly, is untouched. There is now a duty with no official stationery.
A neat illustration of how awkward that is: guidance issued in late 2025, telling employees how to compute their qualified tips for the new deduction, lists Form 4070 as one of the acceptable sources, a year after the form was made historical.
Employer to the government: Form 8027 and the 8 percent rule
A large food or beverage establishment must file Form 8027 annually. All three conditions have to hold: it is located in one of the 50 states or the District of Columbia, tipping of food or beverage employees by customers is customary, and the employer normally employed more than 10 employees on a typical business day in the preceding year.
The interesting part is the allocation. Where the tips employees reported add up to less than 8 percent of gross receipts, the employer must allocate the shortfall among directly tipped employees. The allocated amount appears in box 8 of the W-2 and is not included in box 1, so the employee sees a figure they never reported and may owe tax on it.
| Item | Figure |
|---|---|
| Employee count trigger | More than 10 on a typical business day |
| Default allocation rate | 8% of gross receipts |
| Lowest rate the IRS may grant on petition | 2% |
| Paper filing due, tax year 2025 | 2 March 2026 |
| Electronic filing due, tax year 2025 | 31 March 2026 |
From the Instructions for Form 8027 for 2025. Either the employer or a majority of the employees may petition for a rate below 8 percent, but not below 2 percent. Employees use Form 4137 to compute Social Security and Medicare tax on tips of $20 or more a month that were not reported to the employer.
The employer credit, and the third frozen number
An employer pays its share of Social Security and Medicare tax on tips its employees received from customers, which is to say on money that never passed through its hands. Section 45B of the tax code gives some of that back as a credit, claimed on Form 8846.
Two things about the current form are worth noticing. The first is what it now covers:
- Providing, delivering, or serving food or beverages. The historic scope of the credit.
- Providing barbering and hair care, nail care, esthetics, or body and spa treatment services. New. The credit was limited to food and beverage for decades and was extended to beauty and personal care in the 2025 legislation. This is one of the least covered changes in the package.
The second is the wage floor the credit is measured against. Tips used to figure the credit must be reduced by the amount needed to bring the employee up to a stated hourly rate, and for food and beverage that rate is still $5.15 an hour, the federal minimum wage as it stood in 1996. Beauty service employers use $7.25. One form, two different statutory floors, one of which refers to a wage that has not existed since 2007.
Seventy-two guides, grouped by the kind of question
The Tips hub holds the full list and the survey data on what Americans actually do. These are the entry points by situation. Counts are current as of 19 August 2026.
Start here
The four that settle most of the rest.
- How much should you tipEvery situation in one place, with the percentages.
- What 15, 18, 20 and 25 percent signalAnd what actually counts as standard now.
- When you do not have to tipTipping is voluntary. This covers when declining is fine.
- How it works behind the scenesThe plain-English version of this page.
Restaurants and delivery
Where the tip credit and the service charge questions actually bite.
- Waiters and serversWorked examples on a $30, $60 and $100 check.
- Dining out, auto-gratuity and service chargesThe customer side of section 08.
- Before or after taxWhat the choice actually costs, by bill size and state.
- Delivery driversIncluding why the delivery fee is not a tip.
- Takeout and carryoutWhere the answer is often nothing.
Salons, spas and personal care
The occupations the employer payroll tax credit was extended to in 2025.
- Hairdressers and barbersThe 20 percent standard, with worked amounts.
- Nail salonsCash against the tablet, and two technicians on one service.
- Massage therapistsAnd where medical settings change the answer.
- Tipping the ownerThe old no-tip-the-owner rule, and booth renters.
- Botox and med spa treatmentsUsually not, and the line is clinical rather than cosmetic.
Trades, travel and everything else
Where the honest answer is often that the worker sets the price.
- Plumbers and electriciansLicensed trades who set their own rates.
- MoversPer person or per hour, and how to split it.
- Hotel staffValet, bellhop, concierge, housekeeping and room service.
- CruisesDaily auto-gratuities by line, which are service charges.
- Tipping abroadCountry by country, and why the United States is the outlier.
- Holiday tippingWho to tip at Christmas and how much.
The tool
- Tip CalculatorSplit bills and calculate gratuity, with what to leave in each situation.
- Doing it in your headMental math shortcuts for 15, 18 and 20 percent.
The other eleven sections of the site are on the blog hub.
Questions this section gets, with the document named
Is the federal tipped minimum wage still $2.13?
Yes. It has been $2.13 an hour since 1991 and is unchanged. The maximum tip credit is $5.12, and the two together have to reach the federal minimum wage of $7.25. Eight jurisdictions require the full state minimum wage in cash instead, and many others set a figure between the two.
What happens if the tips do not reach the minimum wage?
The employer has to make up the difference. The tip credit is a claim that the customer already paid part of the wage, and if that turns out not to be true for a given workweek the shortfall is owed in cash. The burden of proving the employee actually received the tips is on the employer, not the employee.
Is the 80/20 rule still in force?
No. The Fifth Circuit vacated it and the Department of Labor removed the text from the Code of Federal Regulations effective 17 December 2024. There is no federal percentage limit and no 30-minute limit on side work. The operative regulation is the dual jobs test written in 1967, which asks which job the employee is doing rather than how long each task took.
Was the whole Department of Labor tip rule struck down?
No, and this is the most common error. The vacatur reached only the part of the 2021 rule that rewrote 29 CFR 531.56. The tip pooling rules, the ban on managers and supervisors keeping tips, and the civil money penalty provisions were never vacated and remain fully in force.
Can a manager take a share of the tip pool?
No. Federal statute prohibits an employer keeping tips for any purpose, including allowing managers or supervisors to keep any portion, whether or not a tip credit is taken. A manager may keep a tip a customer gives them for service they directly and solely provided. They may contribute to a pool; they may not receive from one.
Who counts as a manager for this?
Someone meeting the duties test at 29 CFR 541.100(a)(2) through (4): primary duty is management, regularly directs two or more employees, and has authority over hiring and firing or whose recommendations carry particular weight. The salary threshold at paragraph (a)(1) is deliberately excluded, so an hourly shift lead can be a manager for tip purposes while being non-exempt for overtime purposes.
Can back-of-house staff be in a tip pool?
Only where the employer takes no tip credit at all and every worker in the pool receives a direct cash wage of at least the full minimum wage. Where a tip credit is taken, the pool is limited to employees who customarily and regularly receive tips.
Can an employer take the credit card fee out of my tip?
Under federal law, yes, limited to the actual percentage the processor charges and provided it does not push the wage below the minimum. California prohibits the deduction outright under Labor Code section 351. Other states may too, so check your own state labor department rather than a national summary.
Did Washington DC eliminate its tip credit?
No. Initiative 82 set a schedule reaching full parity on 1 July 2027, and that schedule was displaced. The law as currently codified sets the tipped wage as a percentage of the minimum wage, reaching 75 percent in 2034, with no parity date at all. The tipped base wage rose from $10.00 to $10.30 on 1 July 2026.
Does no tax on tips mean tips are untaxed?
No. It is an income tax deduction of up to $25,000 a year, available for tax years through 2028, phasing out above $150,000 of modified adjusted gross income or $300,000 filing jointly. Social Security and Medicare tax on tips is completely unaffected, and the final regulations say so in terms.
Does the deduction apply to an automatic gratuity?
No. A qualified tip has to be paid voluntarily, not be subject to negotiation, and be determined by the payer. A service charge added automatically without a customer option fails those tests, and the Internal Revenue Service said so plainly when the final regulations issued.
Do I still have to report tips if Form 4070 was retired?
Yes. The form and Publication 1244 were made historical from 2024, but the obligation is untouched: keep a daily record, and report $20 or more of cash tips from one job to that employer in writing by the tenth of the following month.
Why does an amount I never reported appear on my W-2?
Probably allocated tips in box 8. A large food or beverage establishment whose employees report tips totaling less than 8 percent of gross receipts must allocate the shortfall among directly tipped employees. The figure is not included in box 1 and is not something you reported.
The documents behind everything above
Every figure on this page is tied to the body that publishes it, with the date, because two of the three regimes described here changed within the last two years and a rule quoted without its date cannot be checked. All links verified 19 August 2026.
- The tip credit and its conditions. Department of Labor Wage and Hour Division, Fact Sheet 15, Tipped Employees Under the FLSA, accessed 19 August 2026 (the page carries no revision date). Source of the $7.25, $2.13 and $5.12 figures, the make-up-the-difference obligation, the two kinds of tip pool and the credit card fee position.
- The statute. 29 U.S.C. 203, Office of the Law Revision Counsel, for the definition of a tipped employee at subsection (t), the tip credit mechanism at 203(m)(2)(A), and the prohibition on employers keeping tips at 203(m)(2)(B), added by the Consolidated Appropriations Act, 2018.
- The regulations on tips. 29 CFR part 531, subpart D, current as of August 2026. Section 531.52 for the definition of a tip and the manager rule, 531.54 for tip pooling and the payday deadline, 531.55 for compulsory service charges, 531.56 for the dual jobs test and the individual $30 threshold, and 531.59 for the notice requirement and the burden of proof.
- The manager and supervisor duties test. 29 CFR 541.100, of which only paragraphs (a)(2) through (4) are incorporated by the tip rule. The salary test at (a)(1) is not.
- The 80/20 vacatur. Restaurant Law Center and Texas Restaurant Association v. United States Department of Labor, Fifth Circuit No. 23-50562, 115 F.4th 396. The original opinion of 23 August 2024 and the substituted opinion of 29 October 2024, which withdraws the first and is the operative decision.
- What the Department did about it. Tip Regulations Under the FLSA, Restoration of Regulatory Language, 89 FR 101884, published and effective 17 December 2024. Source of the statement that since the mandate issued on 29 October 2024 the operative version of 531.56(e) is the regulation in place on 27 December 2021, and of the citation form acknowledging that the reported decision was superseded on rehearing.
- Civil money penalties. 29 CFR part 578 for the penalty structure and the definition of willfulness, and the Department of Labor civil money penalty inflation adjustment table for the $1,409 and $2,515 amounts applicable to penalties assessed on or after 16 January 2026.
- State cash wages. Department of Labor, Minimum Wages for Tipped Employees, table effective 1 July 2026, for the eight jurisdictions with no tip credit and every cash wage quoted.
- California on card fees and gratuities. California Department of Industrial Relations, Division of Labor Standards Enforcement, tips and gratuities, for Labor Code section 351 and the prohibition on deducting processing fees.
- The District of Columbia schedule. D.C. Code section 32-1003 as currently codified for the percentage schedule, and the District Department of Employment Services notice of the 1 July 2026 increase for the $18.40 and $10.30 figures. The suspension began with D.C. Act 26-94, effective 30 June 2025. The permanent amendment that inserted the percentage schedule is not separately identified here because its act number could not be confirmed, so the schedule is attributed to the section as codified.
- Michigan. Michigan Department of Labor and Economic Opportunity minimum wage schedule posting, for the percentage schedule capping at 50 percent from 2031. The public act number of the February 2025 amendment is not given here because the state legislature site could not be read.
- No tax on tips. Treasury Decision 10044, Occupations That Customarily and Regularly Received Tips, final rule published 13 April 2026 and effective 12 June 2026, source of the $25,000 cap, the 2028 sunset, the definition of qualified tips, the specified service trade or business exclusion and the statement that the deduction does not apply for FICA or SECA purposes. Announced by IR-2026-49, 10 April 2026, which gives the more than 70 occupations figure and the position on automatic service charges. Phase-out thresholds and non-itemizer availability from IRS Tax Tip 2026-06, 26 January 2026.
- The 2025 transition. IR-2025-110, 5 November 2025, and Notice 2025-69, which lists box 7 of the W-2, Form 4070 and line 4 of Form 4137 as sources for computing qualified tips, and states that it does not affect rights or responsibilities under the Fair Labor Standards Act.
- Service charges. Revenue Ruling 2012-18, source of the four factors and the 18 percent worked example. No Internal Revenue Bulletin volume and page is given for it here because the citation could not be confirmed.
- Reporting. Publication 531, Reporting Tip Income, revised December 2024, for the $20 threshold, the tenth-of-the-month deadline, allocated tips and the retirement of Form 4070 and Publication 1244. Topic 761, last reviewed 8 June 2026. Instructions for Form 8027 for 2025 for the large establishment test, the 8 percent allocation, the 2 percent floor on petition and the filing dates. Form 8846 for 2025 for the section 45B credit, the new beauty and personal care category and the $5.15 and $7.25 floors.
- Scale. Bureau of Labor Statistics Occupational Outlook Handbook for waiters and waitresses, bartenders and barbers, hairstylists and cosmetologists, all last updated 28 August 2025 with 2024 data. The four million estimate and the 37 percent figure are from the Budget Lab at Yale, a university policy center rather than a government agency, using Current Population Survey microdata for 2023.
- Noted and not published. Several things were checked and left out. No count of qualified occupations is given beyond the more than 70 the Service states, because the examples inside each occupation code are illustrative rather than exhaustive and a precise count is not well defined. No list of states other than California prohibiting card fee deductions is given, because only California was verified against a state agency. No Michigan public act number and no District of Columbia act number for the permanent schedule are given, for the reasons noted above. No claim is made about whether the section 224 deduction reduces state income tax, which depends on state conformity and was not researched. And no employment figure on this page comes from the occupational wage survey, only from the Occupational Outlook Handbook, which is a year behind it.
Scope note. This page describes federal and state law as it stood on 19 August 2026. Two of the three regimes described changed within the last two years, one of them by a court decision that was itself withdrawn and replaced, so treat any date here as a fact to re-check rather than a fixture. Nothing on this page is legal, tax or employment advice. It describes published rules in general terms and cannot account for the state you work in, the terms of your employment, or the facts of any dispute; a wage and hour lawyer, a tax professional, or your state labor department can, and the Department of Labor accepts complaints directly. All figures, thresholds and forms are United States ones. Where a number here is arithmetic performed on published figures rather than a published figure itself, the line it sits on says so.