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Tipping concepts

Cash Tip

Also called: cash gratuity

A tip paid in physical currency — still 100% taxable, still reportable to your employer, and still tracked in tip pools and tip-outs.

A cash tip is exactly what it sounds like: paper money or coins handed directly to a server, bartender, valet, hair stylist, or other tipped worker. From a tax perspective, cash tips are no different from credit card tips — they're ordinary taxable income.

The distinguishing feature of cash tips is auditability: the employer doesn't see them unless the worker reports them. This creates two practical issues:

  1. Reporting obligation: any month you receive $20 or more in cash tips from a single employer, you must report the total to that employer by the 10th of the next month (IRS Form 4070 or equivalent log). The employer then withholds FICA on the reported amount.
  2. Allocation risk: if a restaurant's total reported tips fall below 8% of gross sales, the IRS requires the employer to allocate the shortfall among directly tipped employees and report it in Box 8 of their W-2s. Under-reporting cash tips can trigger this.

Apps like NeighCheck let you log cash tips per shift so you have a defensible record of what you earned and reported. The IRS Tip Reporting Program (TRDA, TRAC) offers reduced audit exposure to restaurants whose workers report tips properly.