Tip tax checklist for filing season 2027: what to pull before you file

Short answer: Before you file your 2026 return, pull six things: your W-2 from each job (boxes 1, 7, 8, 12 and 14b), your own daily tip log totaled for the year, your tip-out totals, Form 4137 if you had tips you never reported to an employer, Schedule 1-A, and last year's return. The tips deduction is up to $25,000 of qualified tips, for tax years 2025 through 2028, claimed on Schedule 1-A. The new part for 2026 is that your W-2 should now show your reported tips in box 12 with code TP and your occupation code in box 14b.

By Goodhands Apps · Updated October 30, 2026 · 9 min read · Also in Spanish

This page lists what IRS material says to have on hand. It is not tax advice and does not say whether you qualify. Last checked: 2026-10-30. The 2026 Schedule 1-A instructions were not yet published when this was written; the line references below are from the 2025 forms and will be re-checked in January.

What do I gather?

How do I compare my log to W-2 box 7?

Box 7 is the tips your employer put through payroll as Social Security tips. For most servers it is the sum of the monthly tip reports you gave the employer. Your log total for the year should be close to it. A gap means you reported less than you logged, the employer recorded less than you reported, or you logged tips you never reported.

The IRS gave an example for 2025 returns that shows why the comparison matters (IRS IR-2025-114). Bob reported $20,000 to his employer on Forms 4070 during the year and had $4,000 of unreported tips on Form 4137, line 4. His W-2 box 7 showed $15,000. Under Notice 2025-69 he could use either the $15,000 from box 7 or the $20,000 from his own reports, and add the $4,000 either way. Without his own copies of the monthly reports, the only number he could point to was $15,000.

For 2026 W-2s there is a second number to check. Box 12, code TP, is "the total amount of cash tips reported to the employer" (2026 W-2 instructions). For most servers, box 7, box 12 TP and your own monthly reports should all show the same figure.

Take a plain Saturday to see what "reported tips" means on the pay stub. You close out with $310 in card tips and $85 in cash, tip out $40 to the busser and $25 to the bar, and keep $330. The $330 is what goes in your log for that shift, what goes on your monthly report, and what ends up in box 7. The $65 you tipped out is income for the busser and the bartender, and they report it.

What about tips that are not on my W-2?

Cash you took home and never reported to the employer is still income. Form 4137 is where it goes: the IRS says employees who did not report some cash tips use it "to report those tips as additional wages on their Form 1040" and to pay the employee share of Social Security and Medicare tax on them (IRS, tip recordkeeping and reporting). The deduction is limited to tips reported on a W-2, a 1099, another statement furnished to you, or reported by you on Form 4137 (IRS FS-2026-04). Tips that appear nowhere cannot be deducted.

Tips under $20 in a month from one job skip the employer report and still go on your return (IRS Topic 761; IRS Publication 531). Your log is the only place those months exist.

Which amounts do I leave out?

Automatic gratuities and service charges. The final regulations say "automatic gratuities, such as service charges, are not qualified tips for purposes of the deduction," and a charge counts as voluntary only if the customer can reduce it to zero (TD 10044, Internal Revenue Bulletin 2026-18). The 18% added to a party of ten is pay, and it is taxed, but it is not a qualified tip. If your restaurant pays those out to you, keep them in a separate column so the year-end total you compare to box 7 is tips only.

Tip pool money received by a manager or supervisor is also out. Tips a manager receives directly for service they personally provided can still qualify (TD 10044).

Where does it go on the return?

On the 2025 forms, the deduction is claimed in Part II of Schedule 1-A, "No Tax on Tips." Part I figures your modified adjusted gross income for the phase-out, and the Part VI total carries to Form 1040, line 13b (IRS FS-2026-04). The 2026 forms may move lines; check the instructions that ship with them.

The limits, from the IRS and the regulations:

The cap is per return. Two tipped spouses filing jointly share one $25,000 (IRS FS-2026-04).

What changed from tax year 2025?

Three things.

1. The W-2 now reports tips for the deduction. The 2025 W-2 "has not been modified to account for the new tips reporting requirements," so for 2025 returns employees used box 7, their own monthly reports, or a voluntary box 14 figure (Notice 2025-69). The 2026 W-2 adds box 12 code TP for total cash tips reported to the employer and box 14b for the Treasury Tipped Occupation Code (2026 W-2 instructions).
2. The occupation code is on the form. For 2025, the W-2 did not show your occupation and you identified it yourself from the Treasury list (Notice 2025-69). For 2026, box 14b should carry it. Bartenders are code 101 and wait staff 102 on that list (Federal Register).
3. Withholding during the year. The IRS set up withholding procedures so that in 2026 the deduction could show up as lower federal income tax withholding during the year instead of a larger refund (IRS Topic 761). If your employer used them and your take-home rose in 2026, your refund in 2027 may be smaller than the one you saw in 2026 for the same tips.

The final regulations took effect June 12, 2026, after the April deadline for most 2025 returns (TD 10044, IRB 2026-18). The 2026 returns are the first filed with the final rules in place from the start of the year.

Two things did not change. Every tip is still income, and your employer still withholds Social Security and Medicare tax on the tips you report (IRS Topic 761). The $20-a-month rule and the report to your employer by the 10th of the next month still apply (IRS, tip recordkeeping and reporting).

The checklist

1. Collect a W-2 from every job. Read boxes 1, 7, 8, 12 (code TP) and 14b.
2. Total your daily log for the year, net of tip-outs. Keep service charges in their own total.
3. Compare the log total to box 7 and to box 12 TP. Note any gap and which direction it goes.
4. If you have tips that were never reported to an employer, prepare Form 4137.
5. Check filing status (joint, if married) and that the tipped spouse has an SSN valid for employment.
6. Figure MAGI on Schedule 1-A, Part I. If it passes $150,000 ($300,000 joint), reduce the deduction by $100 for every $1,000 over.
7. Enter qualified tips on Schedule 1-A, Part II, up to $25,000. Carry the total to Form 1040 per the 2026 instructions.
8. Keep the log, the W-2s, Form 4137 and the return together. The IRS general rule is to keep records that support an item until the period of limitations runs, usually three years (IRS, how long to keep records).

Steps 2 and 3 take the most time, and they are the ones that catch a wrong W-2. Goodhands Tip Tracker produces the yearly total and the per-shift detail behind it from one typed line per shift, as a PDF or CSV. It does not calculate the deduction or say whether you qualify.

FAQ

My box 7 is lower than my log. Which number do I use?

For 2025 returns, Notice 2025-69 let an employee use box 7 or the total of the reports given to the employer, and add Form 4137 line 4 either way (Notice 2025-69). For 2026, box 12 code TP is defined as the cash tips you reported to the employer, so it should match your reports. If it does not, raise it with your employer before you file. Whether a different figure is allowed for 2026 is a question for the 2026 Schedule 1-A instructions or a tax professional.

Do card tips count the same as cash?

Yes. Qualified tips are "voluntary cash or charged tips received from customers including shared tips" (IRS). Both reach your W-2 the same way, through your reports and payroll.

Does the deduction cut my Social Security and Medicare tax?

The IRS describes it as a deduction on the income tax return. Topic 761 still describes employers withholding Social Security and Medicare on reported tips (IRS Topic 761). Nothing in the IRS material on the deduction says those taxes change.

I worked two restaurants. Is it $25,000 each?

No. The $25,000 is the maximum per return per year (IRS FS-2025-03). Add the qualified tips from both W-2s and apply one cap.

I did not file Schedule 1-A for 2025. Can I still?

The IRS page on the occupation list says taxpayers who already filed a 2025 return and want to claim or change the deduction may amend (IRS, occupations list and amended returns). Whether it is worth doing in your case is a question for the instructions or a tax professional.

This guide describes public IRS and Federal Register material as of the date above. It is not tax or legal advice, and your situation may differ. Rules, forms and line numbers can change before the 2027 filing season; the 2026 Schedule 1-A instructions take precedence over this page once published. For decisions about your return, use the IRS instructions or a tax professional. Goodhands Apps is not affiliated with the IRS. Last checked: 2026-10-30.

Guides describe public information and are not tax advice. Goodhands is not affiliated with the IRS.