Short answer. Write down each shift's tips the same day: cash, card tips, money you got from a tip pool and anything you paid out, with automatic service charges kept in a separate column. Report your cash tips to your employer by the 10th of the next month (unless they came to under $20 that month), then compare your yearly total with your Form W-2. For 2026, employers show cash tips reported to them in box 12 with code TP.
Why a daily log matters for this deduction
For tax years 2025 through 2028, people who receive qualified tips in an occupation on the IRS list can deduct up to $25,000 of them. The amount phases out above $150,000 of modified adjusted gross income ($300,000 on a joint return), you need a Social Security number, and married couples must file jointly to claim it. Self-employed people are limited to the net income of the business where the tips were earned.
The deduction depends on two things the IRS can ask you to prove: how much you received, and that it was a qualified tip. Notice 2025-69 says taxpayers "must maintain adequate books and records to substantiate both their eligibility for and the amount of any deduction claimed." Your employer's records help, but your own daily log is what fills the gaps: a missed report, a shift at a second job, or a tip pool your pay stub lumps together.
Step by step: set up the log
- Pick one place and stick with it. A notebook, a notes app or a spreadsheet all work. The IRS asks for a daily record; it does not require a particular form.
- Use one line per shift. Columns: date, employer, what you did that shift (bartending, serving, delivering), cash tips from customers, tips paid by card, tips received from a pool or tip share, tips you paid out and to whom, noncash tips with a short description and value, and service charges.
- Fill it in before you leave or the same night. Card tips usually appear on a server report; cash is the part people forget. Count it while the amount is still in your pocket.
- Total it once a month. Add the cash and card columns, note what you reported to your employer, and keep the monthly total next to the employer's figure.
- Save the backup. Keep end-of-shift reports, tip-pool sheets and any app screenshots in the same folder as the log.
Sort what counts as a qualified tip
The final regulations (IR-2026-49) describe a qualified tip this way:
- Cash or an equivalent: cash, checks, credit or debit card tips, gift cards, and electronic or app payments stated in dollars. A token counts only if it can be readily exchanged for a fixed amount of cash.
- Voluntary: the customer chose to pay it and it was not negotiated.
- Tip sharing counts: for employees, tips received through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, can be qualified tips.
- Service charges generally don't: a charge the customer cannot disregard or change, such as an automatic 18% charge for a large party, is not a qualified tip, even if it is passed on to staff.
Noncash tips, such as event tickets, still have to be recorded with their date and value, because you report all tips as income. Keep them in their own column so they don't get mixed into the cash-or-equivalent total.
Report to your employer on time
Employees report cash tips to the employer by the 10th day of the month after they receive them. The exception is a month when your tips from that employer total less than $20. No particular IRS form is required; most employers use their point-of-sale system or a payroll app. Cash tips you didn't report to your employer go on Form 4137, which figures the Social Security and Medicare tax on them.
Check the year-end forms against your log
For 2026, the Form W-2 has three new places to look. Box 12 code TP reports the total cash tips you reported to the employer, box 12 code TT reports qualified overtime, and box 14b shows the Treasury Tipped Occupation Code for your job. If you were paid as a contractor, the payer may show tips on Form 1099-NEC, 1099-MISC or 1099-K. Compare each form with your log's yearly total for that payer, and ask about any difference before you file.
For 2025 returns, employers did not have to show tips separately. Notice 2025-69 lets employees use box 7 (Social Security tips), the total on the Forms 4070 they gave their employer, a voluntary box 14 entry or statement, and line 4 of Form 4137.
One server's week
A server at a single restaurant keeps this log for one week in March 2026:
| Day | Cash | Card | From tip pool | Paid out | Service charge |
|---|---|---|---|---|---|
| Tue | $46 | $112 | $0 | $18 to bussers | $0 |
| Thu | $58 | $131 | $0 | $20 to bussers | $0 |
| Fri | $71 | $204 | $0 | $30 to bussers | $96 (party of 10, automatic 18%) |
| Sat | $85 | $236 | $40 | $32 to bussers | $0 |
Cash and card tips for the week come to $943, plus $40 from the pool, and $100 was paid out to bussers. The $96 automatic charge stays in its own column: the customer could not decline it, so it is not a qualified tip. The server records the week, adds it to the March total, and reports March cash tips through the employer's system by April 10. In January 2027 the server compares the yearly totals with box 12 code TP on the 2026 W-2 and asks payroll how tip-outs were handled if the figures differ.
Records to keep with the log
- The log itself and each month's total.
- Copies of what you reported to the employer each month.
- Server or shift reports, tip-pool or tip-share sheets.
- Your Forms W-2, 1099 and any Form 4137 you file.
- A short note of your job duties, which helps if anyone asks which occupation code applies.
Official sources
- IRS: Working Families Tax Cuts provisions for individuals and workers (updated Aug. 27, 2026)
- IRS IR-2026-49: final regulations listing tipped occupations and defining qualified tips (April 10, 2026)
- IRS: Tip recordkeeping and reporting (updated July 31, 2026)
- IRS Notice 2025-69: guidance for individuals who received qualified tips or qualified overtime in 2025
- IRS: General Instructions for Forms W-2 and W-3 (2026)
- IRS FS-2026-04: Schedule 1-A, Additional Deductions, what to know about the new form
Checked November 2026 on irs.gov and nj.gov.
Common questions
Do I need a special IRS form for my daily tip record?
No. The IRS asks employees to keep a daily record of tips and says no particular form must be used to report tips to an employer. A notebook, app or spreadsheet with one line per shift works.
Does an automatic gratuity on a large party count as a tip?
Generally no. Under the final regulations, a charge the customer cannot disregard or change is a service charge, not a qualified tip, even if it is passed on to staff.
Are tips I get from a tip pool qualified tips?
They can be. The final regulations include tips an employee receives through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
What if I forgot to report cash tips to my employer?
Cash tips you didn't report to your employer go on Form 4137 with your return. It figures the Social Security and Medicare tax on them.
Where will my reported tips show on the 2026 Form W-2?
Box 12 with code TP shows the total cash tips you reported to the employer, and box 14b shows the Treasury Tipped Occupation Code for your job.
Related guides: Is my job on the tipped occupations list? · W-2 codes TT and TP