Filing Taxes When You Earn Tips

If you work as a server, bartender, or in any tipped position, it’s important to know that all your tips are taxable income — whether paid in cash, by credit card, or through a shared tip pool. Both the IRS and California Franchise Tax Board (FTB) expect you to report these amounts accurately on your tax return.

Start by keeping a daily record of your tips using IRS Form 4070A or a simple tracking app. Each month, report tips of $20 or more to your employer so they can include them on your W-2 and withhold the right taxes. If you forgot to report some tips, you’ll need to include them using IRS Form 4137 when filing your return.

When you file your federal and California state tax returns, remember that tip income must be included in your total wages. The FTB mirrors federal rules, so any unreported tip income you disclose on your federal return automatically carries over to your California return.

At All California Accountancy, we specialize in helping service industry professionals — from servers and bartenders to hospitality staff — stay compliant, accurate, and audit-ready. We can help you recover IRS transcripts, file past-due returns, and correct underreported tip income.

Disclaimer

This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.

IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.