How to File Taxes as a Server and Report Tip Income

Filing taxes as a server involves unique considerations. The compensation structure, blending an hourly wage with a fluctuating stream of tips, introduces specific documentation and reporting requirements. This process involves understanding how each component of your income is categorized, identifying the correct tax forms, and ensuring all earnings are properly accounted for, from employer-paid wages to cash tips from customers.

Identifying and Documenting Your Income

The first step in preparing your tax return is to consolidate all sources of income, beginning with your Form W-2. Box 1, “Wages, tips, other compensation,” shows the total amount your employer paid you, which includes your hourly wages plus all reported credit card tips.

Your W-2 also has boxes specific to tip earners. Box 7, “Social Security tips,” shows tips you reported to your employer. Box 8 may show “Allocated tips,” an amount your employer assigns if you work at a large food and beverage establishment and total reported tips fall below 8% of gross sales.

A primary task for a server is tracking income not automatically recorded by an employer, mainly cash tips. All tips are taxable income and must be reported. Maintaining a detailed daily tip log is the most effective method, recording the date, cash tips, and credit card tips for each shift.

This log is your evidence if you need to dispute the allocated tips shown in Box 8 of your W-2. If your records show you earned less than the allocated amount, they can be used to justify reporting the lower, correct figure. Without such documentation, you must report the full allocated amount as income.

Finally, account for any tip-sharing arrangements. If you are required to share tips with other employees, such as bussers or bartenders, that amount reduces your personal taxable income. Record the amounts you “tipped out” in your daily log and subtract them from your gross tips to determine the net amount you retain for tax purposes.

Calculating Tax on Unreported Tips

Once you have determined your total unreported tip income, you must calculate the associated Social Security and Medicare taxes. These taxes (FICA) were not withheld from your cash tips. To calculate and pay this, you must use Form 4137, Social Security and Medicare Tax on Unreported Tip Income.

On Form 4137, you will transfer the total of unreported cash tips from your records. You must also include any allocated tips from Box 8 of your W-2. The form guides you to calculate the tax owed by multiplying your unreported tip income by the current tax rates.

The Social Security tax is 6.2% and applies up to an annual income limit, which is $176,100 for 2025. The Medicare tax is 1.45% and applies to all of your earnings with no income limit. Form 4137 has separate lines to ensure you do not overpay Social Security tax if your total earnings exceed the annual threshold.

The total FICA taxes calculated on Form 4137 are transferred to your main tax return, Form 1040, and added to your overall tax liability. Failing to report these tips and pay the associated tax can lead to a penalty of 50% of the unpaid Social Security and Medicare tax.

Determining Your Allowable Deductions

When preparing your taxes, you can choose between the standard deduction or itemizing deductions. The standard deduction is a fixed dollar amount subtracted from your adjusted gross income (AGI). For most taxpayers, the increased standard deduction introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 is more beneficial than itemizing.

A change from the TCJA was the suspension of deductions for most miscellaneous itemized expenses from 2018 through 2025. This directly impacts servers, as this category included unreimbursed employee expenses. Under current federal law, you cannot deduct the costs of the following work-related items on your federal return:

• The cost of required uniforms not suitable for everyday wear
• Specialized, mandatory footwear, such as certified non-slip shoes
• Tools of the trade, such as corkscrews, pens, or order pads
• Fees for food handler permits, alcohol service certifications, or union dues

These rules apply at the federal level. However, a small number of states did not conform to all federal changes and may still allow for the deduction of certain employee business expenses on your state return.

Completing and Filing Your Tax Return

With all income documented, the final step is assembling your tax return on Form 1040. On the line for wages and salaries, you will report a single figure. This number includes your total wages and reported tips from Box 1 of your W-2, plus the total unreported cash tips from your daily log.

You must also add any allocated tips from Box 8 of your W-2 to your total income on Form 1040. The only exception is if your daily tip records prove you received a lower amount. In that case, you would report the actual amount from your records and should attach a statement explaining the discrepancy.

The tax on your unreported tips, calculated using Form 4137, is carried over to Schedule 2, Additional Taxes, and added to your total tax due. If you are itemizing deductions for other reasons, like mortgage interest, you would use Schedule A. Remember that unreimbursed work expenses for a server are not included here.

After all forms are complete, you can file your return. The most common method is to e-file using tax preparation software. Alternatively, you can print the completed forms and mail them to the IRS.