Tipped workers get hit with the same federal income tax brackets as everyone else. The complication is that your tax bill isn't calculated on your hourly wage — it's calculated on your total income, including every tip. Cash, card, app, tip-jar venmo. All of it.
The three things being withheld
Look at a typical restaurant pay stub and you'll see deductions for federal income tax, Social Security (6.2%), and Medicare (1.45%). Those last two together are called FICA, and they're flat — every dollar of wages and reported tips gets hit, no brackets, no deductions.
Your state probably wants a cut too. Alabama, where NeighCheck is built, takes a flat 5% above the standard deduction. California's tax tops out at 12.3%. Texas, Florida, Tennessee, and a handful of others charge zero state income tax. Look up your own — it matters.
Federal income tax: the brackets
For 2026, a single filer pays:
- 10% on income up to roughly $11,925
- 12% on income from there up to roughly $48,475
- 22% on income up to roughly $103,350
- 24% up to about $197,300
These are marginal rates. You don't pay 22% on everything if you cross $48,475 — you pay 22% on the dollars above that line, and 12% on the dollars below. The standard deduction (roughly $15,000 single, $30,000 married filing jointly) comes off the top before any of this kicks in.
The W-2 math, worked out
Say you're a server who pulled $42,000 last year — $13,000 in hourly wages, $29,000 in tips. Both numbers go on the W-2 if you reported your tips honestly to your employer. Your taxable income, after the standard deduction, is about $27,000.
Federal income tax on that: roughly $3,000. FICA: 7.65% of the full $42,000 = $3,213. State (varies wildly): zero to about $1,200.
Total tax: roughly $6,000–$7,200 on $42,000 earned. That's an effective rate of 14–17%. Higher than people think, lower than they fear.
The trap: unreported cash tips
Here's where it gets ugly. If you walked home with $8,000 in cash that never made it onto a tip-out slip, your W-2 is wrong. The IRS calls that unreported income, and the penalty for getting caught isn't just the tax you owe — it's the tax, plus interest, plus a 50% Social Security shortfall penalty (Form 4137), plus possibly an accuracy-related penalty of 20%.
The IRS doesn't usually come for individual servers. They come for restaurants, then work backward. If your restaurant gets audited and the credit-card tip ratio doesn't match the cash tip declarations across the staff, the audit walks down the line.
What you actually keep
On $42,000 gross, after all taxes, you're looking at roughly $34,000–$36,000 net. Not the $42,000 you announced at the family Christmas dinner.
NeighCheck's tax dashboard projects this in real time. Every shift you log feeds the year-to-date federal, state, and FICA projection, so you know the number before April surprises you.