How to track tips for the 2025 tax deduction

The 2025 No Tax on Tips deduction lets tipped workers exclude up to $25,000 of qualified tips from federal income tax.¹ The catch: for tax year 2025, the IRS is not requiring employers to report qualified tips separately on the W-2. That means the burden of substantiation falls on you.¹

"Substantiation" sounds heavy. In practice it means one thing: keep a daily, contemporaneous record of every tip you receive. Here's exactly what to log, and how to keep the work to a few seconds per shift.

What counts as a daily tip log

A daily tip log doesn't have a magic format — it just needs to be honest, dated, and kept at the time of the shift (not reconstructed at tax time).² At minimum, log:

• Date and shift — what day, what venue, what role.
• Card tips received.
• Cash tips received.
• Tips you got from a pool (separately from tips you received directly).
• Tip-out you paid to bussers, bar, kitchen, runners.
• Hours worked.

That's it. No special forms, no employer signature, no notarization. The only thing that makes it "audit-proof" is that you actually kept it as the year went on.

Why you can't rely on Box 7

Box 7 of your W-2 reports Social Security tips — the ones your employer was told about and used for FICA.³ Cash tips you didn't get a chance to report, pool tips that were recorded inconsistently, and reclassified shifts can all create gaps. If your tracked number is meaningfully higher than Box 7, that's a conversation to have with payroll and a tax professional.

The W-2 Tip Check is built for exactly this comparison.

What changes in 2026

Beginning tax year 2026, W-2s will separately report qualified tips in new Box 12 (code "TP") and the Treasury Tipped Occupation Code in Box 14b.¹ That's an improvement, but it doesn't replace daily tracking — it just gives you another data point to reconcile against.

The fastest way to keep a log

Two minutes of math at the end of every shift becomes thirty hours of misery in April. The point of an app like Shiftips is that the log writes itself: you tap card tips, cash tips, and tip-out at the end of a shift, and the year-to-date numbers are always current. When tax time comes, the year is already closed out.

Whatever tool you use, the rule is the same: log daily, log honestly, log at the time. Reconstruction is the thing the IRS can't verify.

One more thing: the deduction is federal

The No Tax on Tips deduction reduces federal income tax. State income tax rules vary, and FICA (Social Security and Medicare) still applies to your tips. Don't model your take-home as if you're keeping every dollar — talk to a tax pro about your situation.

This article is general information, not tax advice. Tax claims are based on IRS final regulations published 2026-04-13; verify current guidance with a tax professional before filing.