Social Security Tips

What are Social Security tips?

Social Security tips are the discretionary earnings (tips) an employee receives from customers that are reported on their W-2 and subject to Social Security taxes. This includes cash tips, credit/debit tip charges, and non-cash tips.

These tips must be reported to the employer so that Social Security taxes can be withheld from the employee’s paycheck. Only cash, debit, and credit tips that exceed $20 during a single calendar month must be reported and have taxes withheld.

Stay up to date with the latest rules and regulations regarding Social Secuirty tips with our 2026 guide.

What qualifies as a Social Security tip?

Discretionary earnings must meet these four conditions to qualify as Social Security tips:

• They are not mandated for, or coerced from, the customer.
• The customer determines who receives the payment.
• The customer must have free will to determine the amount given.
• The form of payment is up to the customer’s choice.

Examples of qualified tips include:

• Cash tips
• Electronic settlement tips
• Credit card tips
• Debit card tips
• Gift card tips
• Tip-sharing arrangements (commonly used for portioning out tips with bartenders, food runners, bussers, dishwashers, etc.)
• Tip pools
• Tip splitting
• Tip jars at fast food, counter service, or cafeteria-style restaurants, and other service-oriented businesses
• Other formal or informal tip-sharing arrangements
• Non-cash tips
• Tickets
• Anything else of value

Service charges

Service charges are  not  considered Social Security tips. These additional payments are mandated by the employer and are considered part of an employee’s non-tip wages.

Examples of service charges include:

• Bottle service charges
• Room service charges
• Automatically added gratuities (such as for a large party in a restaurant)
• Event or banquet fees.

What business types have employees who report tips?

Typically, the types of businesses that have employees who report Social Security tips are in the service, travel, or hospitality industries.

Some commonly tipped professionals include:

• Hair stylists
• Tattoo artists
• Restaurant servers
• Bartenders
• Baristas
• Food delivery drivers (pizza delivery, Uber Eats, DoorDash, etc.)
• Grocery delivery drivers (Walmart, etc.)
• Taxi or other hired car drivers (Lyft, Uber, etc.)
• Golf caddies
• Cruise stewards
• Casino dealers
• Hotel bellhops
• Apartment building doorkeepers
• Apartment building elevator operators
• Residential gatekeepers
• Residential security guards.

Are tips taxed differently than wages and other income sources?

No, Social Security tips exceeding $20 in a given month are taxed the same way as taxable wages, compensation, and other income sources. That means tips are subject to the same payroll tax obligations, including Social Security, Medicare, and federal unemployment taxes.

Who is responsible for tracking and reporting Social Security tips?

An employee is responsible for tracking and reporting Social Security tips to their employer and to the IRS during income tax filing time. Tip reports are used to detail all tip income, including cash, credit/debit card transactions, and other non-cash tips. The employee is responsible for the accuracy of their tip reports.

The employee may (but isn't obligated to) use the following to report their tips to their employer:

• Form 4070 (Employee’s Report of Tips to Employer)
• Form 4070A (Employee’s Daily Record of Tips)
• Any other similar form of an employer’s own design.

What happens if an employee fails to report their Social Security tips?

According to the IRS, an employer isn’t liable for tips an employee fails to report, and they don’t need to withhold taxes on unreported tips. Once the IRS submits notice and demand for payment, however, the employer needs to comply.

What are the employer’s responsibilities regarding Social Security tips?

The employer’s responsibilities regarding Social Security tips are to:

• Ensure employees are paid a high enough hourly wage that it meets the federal or state minimum wage requirement once tips are included.
• Give the tip amount to the employee when one is paid via a credit or debit card transaction.
• Portion out pooled tips according to formal or informal arrangements.
• Collect employee tip income reports.
• Include all the employee’s tip income on each paycheck.
• Withhold taxes on the employee portion of reported tips for:
  • Income taxes
  • Social Security
  • Medicare.
• Pay taxes on the employer’s portion of:
  • Social Security taxes
  • Medicare taxes
  • FUTA taxes.
• Include employee tip income and withholding in payroll tax reports:
  • Form 941
  • Form 940
• Make federal tax deposits as required.