Tipped occupations ยท Beverage and Food Service
Server Tips and the 2026 Tips Deduction: Codes 102 and 103
Wait staff appear on the Treasury list behind the 2026 tips deduction as occupation code 102, and food or beverage servers outside restaurants, the banquet and catering case, as code 103, both in the Beverage and Food Service category of the final regulations (T.D. 10044). An employed server sees the year's reported cash tips in Box 12 of the W-2 with code TP and the occupation code in Box 14b, and up to $25,000 of those qualified tips per return is deductible on Schedule 1-A for tax years 2025 through 2028. The automatic gratuity on a large party is not a tip under the IRS's own first example, even when the house passes it to the staff.
Last reviewed: November 4, 2026.
The facts, in one table
| Treasury Tipped Occupation Codes | 102, Wait Staff; 103, Food or Beverage Servers, Non-restaurant |
|---|---|
| Category in the final regulations | Beverage and Food Service |
| Related codes in the same category | 104, Dining Room and Cafeteria Attendants and Bartender Helpers; 109, Host Staff, Restaurant, Lounge, and Coffee Shop; 107, Fast Food and Counter Workers |
| The deduction | Up to $25,000 of qualified tips per return, for tax years 2025 through 2028, claimed on Schedule 1-A whether or not you itemize |
| Phaseout | The amount after the $25,000 limit is reduced by $100 for each $1,000 of modified adjusted gross income over $150,000, or $300,000 on a joint return, counting whole $1,000 steps only (section 224(b)(2) of the Internal Revenue Code; 26 CFR 1.224-1(b)(2)) |
| Where the figure appears | Box 12 of your W-2, code TP, with code 102 or 103 in Box 14b. For 2026 the deduction is generally limited to the amount the employer separately reported |
| Payroll tax | Unchanged. Tips are wages for Social Security and Medicare tax in full; the deduction reduces income tax only |
Read the code the way the site reads the whole list: appearing on the Treasury list is a published fact about an occupation. It is not a decision about any one worker, and the rest of the rules on this page, the reporting rule in particular, decide what a deduction is built from. The full list of 71 codes is on the Treasury Tipped Occupation Codes page.
tip-outs are still tips
How a server's tips reach the tax record
The reporting duty is the employee's: cash tips of $20 or more in a calendar month must be reported to the employer by the tenth day of the following month (IRS Topic No. 761). Card tips pass through the employer's own systems, but they are part of the same reported total: cash tips in the IRS definition include tips received directly from customers, tips from other employees under any tip-sharing arrangement, and charged tips the employer distributes. Servers stand on both sides of the tip-sharing rule. A tip-out you receive from a bartender or another server is a cash tip you report, and the tip-outs you pay to bussers and bartenders are cash tips in their hands, reported by them.
One figure on a server's W-2 is not a tip figure at all. If the restaurant is a large food or beverage establishment, it files Form 8027 and, where the tips reported by the staff come to less than 8 percent of gross receipts, it must allocate the difference among the employees who received tips. The allocated amount appears in Box 8 of the W-2, under the label "Allocated Tips". The IRS does not withhold tax on allocated tips, for the stated reason that the employee did not report those amounts to the employer (Topic No. 761). An allocated amount is the employer's allocation, not your reported tips, and it is not the figure code TP carries.
If the code TP figure on your January W-2 does not match the tips you reported, the missing codes page sets out the common causes and the order of fixes. Only your employer can correct the form, on Form W-2c.
What counts as a qualified tip for a server
A qualified tip is a voluntary payment, in an amount the customer decides, received in an occupation on the Treasury list. Sorted by the IRS definitions, the cases a server actually meets are these:
- Cash left on the table, and card tips the house distributes to you: cash tips, including charged tips, in the IRS definition (Topic No. 761).
- Tip-outs you receive under the house tip-sharing arrangement: cash tips in the same definition, and reportable by you, exactly as your own tip-outs are reportable by the people who receive them.
- The automatic gratuity on a large party, split among the staff: not a tip. The large party charge is the first service charge example in IRS Topic No. 761. A charge the business adds and the customer must pay is non-tip wages when it is paid to you, and it does not belong in code TP, even where the house passes it all through.
- A room service charge, if you work room service in a hotel: also named as a service charge in Topic No. 761, and treated the same way.
- An extra a guest adds voluntarily on a bill that already carries a service charge: the guest's own payment, and a tip. The mandatory charge and the voluntary extra are two different payments, and the rules treat them differently.
watch the Pennsylvania row, $2.83
The wage under the tips
The deduction sits on top of the wage, and the wage for tipped work is set by the Fair Labor Standards Act and by your state. Pennsylvania's row, shown in the full table below, is a useful example of how far a state can sit from the federal floor: a minimum cash wage of $2.83 an hour rather than $2.13, a maximum tip credit of $4.42 against the $7.25 minimum wage, and a tipped employee defined by $135 a month in tips rather than the federal $30.
| Minimum wage the combined pay must reach | $7.25 an hour |
|---|---|
| Lowest cash wage an employer may pay a tipped employee | $2.13 an hour |
| Maximum tip credit | $5.12 an hour |
| Tipped employee, federal definition | A worker in an occupation that customarily and regularly receives more than $30 a month in tips |
The tip credit is a credit toward the minimum wage, not a discount on it: the employer may count up to $5.12 an hour of a tipped employee's tips toward the $7.25, and if cash wages plus tips do not reach the full minimum wage, the employer owes the difference. States set their own floors on top of the federal one, and the full state table, exactly as the U.S. Department of Labor publishes it, follows. Source: U.S. Department of Labor, Wage and Hour Division, "Minimum Wages for Tipped Employees", last revised July 1, 2026, retrieved November 4, 2026.
States that require the full state minimum wage before tips
| Jurisdiction | Basic combined cash and tip minimum wage | Maximum tip credit | Minimum cash wage | Tipped employee: tips received per month |
|---|---|---|---|---|
| Alaska | $14.00 | |||
| California | $16.90 | |||
| Guam | $9.25 | |||
| Minnesota | $11.41 | |||
| Montana: business with gross annual sales over $110,000 | $10.85 | |||
| Montana: business not covered by the Fair Labor Standards Act, with gross annual sales of $110,000 or less | $4.00 | |||
| Nevada | $12.00 | |||
| Oregon | $15.55 (standard statewide); $16.80 (Portland metro); $14.55 (nonurban counties) | |||
| Washington | $17.13 |
States that require a minimum cash wage above the federal $2.13 an hour
| Jurisdiction | Basic combined cash and tip minimum wage | Maximum tip credit | Minimum cash wage | Tipped employee: tips received per month |
|---|---|---|---|---|
| Arizona | $15.15 | $3.00 | $12.15 | Not specified |
| Arkansas | $11.00 | $8.37 | $2.63 | Not specified |
| Colorado | $15.16 | $3.02 | $12.14 | More than $30 |
| Connecticut: hotel and restaurant workers | $16.94 | $10.56 | $6.38 | Not specified |
| Connecticut: bartenders who customarily receive tips | $16.94 | $8.71 | $8.23 | |
| Delaware | $15.00 | $12.77 | $2.23 | More than $30 |
| District of Columbia | $18.40 | $8.10 | $10.30 | Not specified |
| Florida | $14.00 | $3.02 | $10.98 | More than $30 |
| Hawaii | $16.00 | $1.25 | $14.75 | |
| Idaho | $7.25 | $3.90 | $3.35 | More than $30 |
| Illinois | $15.00 | 40 percent of the applicable minimum wage ($6.00) | $9.00 | Not specified |
| Iowa | $7.25 | 40 percent of the applicable minimum wage ($2.90) | $4.35 | More than $30 |
| Maine | $15.10 | 50 percent of the applicable minimum wage ($7.55) | $7.55 | More than $191 |
| Maryland | $15.00 | $11.37 | $3.63 | More than $30 |
| Massachusetts | $15.00 | $8.25 | $6.75 | More than $20 |
| Michigan | $13.73 | $8.24 | $5.49 | Not specified |
| Missouri | $15.00 | 50 percent of the applicable minimum wage ($7.50) | $7.50 | Not specified |
| New Hampshire | $7.25 | $3.98 | $3.27 | More than $30 |
| New Jersey | $15.92 | $9.87 | $6.05 | More than $30 |
| New Mexico | $12.00 | $9.00 | $3.00 | More than $30 |
| New York | $17.00 (New York City, Long Island and Westchester); $16.00 (remainder of the state) | Varies by region and type of employer | Varies by region and type of employer | Not specified |
| North Dakota | $7.25 | 33 percent of the applicable minimum wage ($2.39) | $4.86 | More than $30 |
| Ohio: employers with annual gross receipts of $405,000 or more | $11.00 | $5.50 | $5.50 | More than $30 |
| Oklahoma | $7.25 | $5.12 | $2.13 | Not specified |
| Pennsylvania | $7.25 | $4.42 | $2.83 | $135 |
| Rhode Island | $16.00 | $12.11 | $3.89 | More than $30 |
| South Dakota | $11.85 | 50 percent of the applicable minimum wage ($5.92) | $5.93 | More than $35 |
| Vermont | $14.42 | 50 percent of the applicable minimum wage ($7.21) | $7.21 | More than $120 |
| Virgin Islands | $10.50 | $6.30 | 40 percent of the applicable minimum wage ($4.20) | Not specified |
| Wisconsin | $7.25 | $4.92 | $2.33 | Not specified |
| West Virginia | $8.75 | 70 percent of the applicable minimum wage ($6.13) | $2.62 | Not specified |
States where the minimum cash wage is the federal $2.13 an hour
| Jurisdiction | Basic combined cash and tip minimum wage | Maximum tip credit | Minimum cash wage | Tipped employee: tips received per month |
|---|---|---|---|---|
| Alabama | $7.25 | $5.12 | $2.13 | More than $30 |
| American Samoa | Special minimum wage rates apply | $2.13 | More than $30 | |
| Georgia | $7.25 | $5.12 | $2.13 | More than $30 |
| Indiana | $7.25 | $5.12 | $2.13 | More than $30 |
| Kansas | $7.25 | $5.12 | $2.13 | Not specified |
| Kentucky | $7.25 | $5.12 | $2.13 | More than $30 |
| Louisiana | $7.25 | $5.12 | $2.13 | More than $30 |
| Mississippi | $7.25 | $5.12 | $2.13 | More than $30 |
| Nebraska | $15.00 | $12.87 | $2.13 | Not specified |
| North Carolina | $7.25 | $5.12 | $2.13 | More than $20 |
| Northern Mariana Islands | $7.25 | $5.12 | $2.13 | More than $30 |
| Puerto Rico | $10.50 | $8.37 | $2.13 | More than $30 |
| South Carolina | $7.25 | $5.12 | $2.13 | More than $30 |
| Tennessee | $7.25 | $5.12 | $2.13 | More than $30 |
| Texas | $7.25 | $5.12 | $2.13 | More than $20 |
| Utah | $7.25 | $5.12 | $2.13 | More than $30 |
| Virginia | $12.77 | $10.64 | $2.13 | More than $30 |
| Wyoming | $7.25 | $5.12 | $2.13 | More than $30 |
- Florida: the figures above are the ones in the July 1, 2026 revision. The Department of Labor's own footnote to this table states that the Florida minimum wage is scheduled to increase by $1.00 every year on September 30 until reaching $15.00 on September 30, 2026.
- Hawaii: the tip credit is permissible only if the combined amount the employee receives from the employer and in tips is at least $7.00 more than the applicable minimum wage.
- Michigan: the Department of Labor's footnote states that the Michigan tipped cash wage is scheduled to increase annually until it reaches 50 percent of the state minimum wage in 2031, and that the Michigan minimum wage is scheduled to increase to $15.00 on January 1, 2027.
- District of Columbia: employers must currently pay a minimum cash wage of at least 56 percent of the standard minimum wage.
- No state minimum wage law: Alabama, Louisiana, Mississippi, South Carolina and Tennessee have no state minimum wage law, and Georgia's law does not apply to tipped employees; employers covered by the Fair Labor Standards Act in those states pay at least the federal minimum wage.
- Not in this table: the Department of Labor notes that some states set subminimum rates for minors or students or a training wage, and some cities and counties set minimum wages higher than the state rate. The Department advises checking with the state labor office for official information.
Estimate the deduction on your own figures
The tips deduction calculator takes your reported tip total and your income, applies the $25,000 limit and the phaseout, and returns an estimated deduction. It asks for nothing but the figures, and the calculation runs in your browser.
Servers who also work overtime should read the two pages together: the overtime premium has its own code, TT, its own deduction, and the same reported-figure rule. The overtime deduction calculator estimates it, and the missing codes page covers a missing code TT as well as a missing code TP.
Other tipped occupations on this site
- Bartender tips deduction, code 101
- Rideshare and delivery driver tips, codes 802 and 804
- Barber and stylist tips deduction, code 603
- Casino dealer tips deduction, code 201
- Golf caddie tips deduction, code 701
- Home services tips deduction, codes 401 to 409
- Hotel staff tips deduction, codes 301 to 304
- Valet parking tips deduction, code 801
- All 71 Treasury Tipped Occupation Codes
Questions and answers
My W-2 shows an amount in Box 8 as well as code TP. Which one feeds the deduction?
Code TP. Box 8 is allocated tips: an employer allocation under the Form 8027 rules for large food or beverage establishments, made when the tips reported by the staff fall under 8 percent of gross receipts. The IRS does not withhold on allocated tips because they were not reported by the employee (Topic No. 761). The deduction is built from the tips you reported, which are the code TP figure.
I serve in a restaurant during the week and work banquets on weekends. Two codes?
The list carries both: 102 for wait staff and 103 for food or beverage servers outside restaurants. The employer reports the occupation code in Box 14b, and the deduction is figured on the code TP total across your reported tips. If you believe the wrong code was printed, it is corrected by the employer on Form W-2c.
Do I have to report tips of less than $20 in a month?
The monthly report to the employer is required at $20 or more of cash tips in a month, by the tenth day of the following month. Below that figure Topic No. 761 states the employee is not required to report the tips to the employer, but must still report the amounts as income on the tax return. All tips are income, reported or not.
Sources
- Treasury Decision 10044, April 13, 2026. The final regulations carrying the 71 Treasury Tipped Occupation Codes. Federal Register, Vol. 91, No. 70, pages 19026 to 19056; the list is Table 1 to paragraph (h) of 26 CFR 1.224-2.
- IRS, Topic No. 761, Tips: withholding and reporting. Cash tips include tips received directly from customers, tips from other employees under any tip-sharing arrangement, and charged tips; the $20 a month reporting rule; service charges are non-tip wages, with the IRS's own examples. Read in full November 4, 2026.
- IRS, Fact Sheet FS-2026-13, August 6, 2026, and the IRS W-2 frequently asked questions. For 2026 the tips deduction is generally limited to the amount the employer separately reported in code TP, and amounts reported on a substitute Form 4852 cannot be used for it, while qualified tips reported on Form 4137 can. Note on source level: a fact sheet is IRS guidance, not binding legal authority.
- IRS, Instructions for Forms W-2 and W-3, tax year 2026. Final version, posted January 30, 2026. Carries Box 12 code TP, Box 14b, and Box 8, allocated tips.
- U.S. Department of Labor, Wage and Hour Division, "Minimum Wages for Tipped Employees". The state tipped minimum wage table on this page is transcribed from this source in full: document last revised July 1, 2026, retrieved November 4, 2026.
- Public Law 119-21, enacted July 4, 2025. Created this deduction in section 224 of the Internal Revenue Code, including its $25,000 limit and the phaseout in section 224(b)(2).
Last reviewed: November 4, 2026.