The tips and overtime deductions are only as good as the numbers behind them. Your employer supplies some of those numbers on your W-2. The rest are yours to keep, and the year to start keeping them is the year you are in — reconstructing tips from memory in April does not work and does not hold up.

What your employer reports

For tax year 2026, W-2s carry the figures that feed Schedule 1-A, including a Box 12 code for qualified tips. Our guide to Box 12 code TT covers what appears where.

Two things that reporting does not do. It does not cover income the employer never knew about — unreported cash tips are absent from the W-2 and are also, separately, income you were required to report. And it does not resolve the overtime question, because the deduction applies only to the premium portion of overtime pay, not to the whole overtime amount.

The overtime reconciliation

This is where most discrepancies come from. If you worked overtime at time and a half, the deduction reaches the extra half — not the base rate portion of those hours.

Example — 10 overtime hours at a $20 base rate

  1. Line 1Overtime rate (1.5 × $20)$30/hour
  2. Line 2Gross overtime pay (10 × $30)$300
  3. Line 3Base-rate portion (10 × $20)$200
  4. Line 4Premium portion — the qualifying part$100

Someone who assumes the whole $300 qualifies will overstate the deduction threefold. Keep pay stubs that break out overtime hours and rates, because that breakdown is what lets you check the figure rather than trust it.

What to keep through the year

  • A daily tip record. Date, cash tips received, card tips, amounts paid out to other staff through tip sharing, and the net. The IRS has long expected tipped employees to keep a daily record, and Publication 531 describes what it should contain.
  • Every pay stub. Especially ones showing overtime hours and the rate applied. Employers change payroll systems and historical stubs are not always retrievable later.
  • Tip-out records. If you pay out to bussers, bartenders or a pool, those amounts reduce what is yours. Keeping the record protects you from being taxed on money you handed on.
  • Your reports to your employer. If you report tips to your employer monthly, keep a copy. It is the paper trail connecting your record to their W-2.
  • Each employer's W-2 separately. Two jobs means two W-2s and two sets of figures to add up.

A phone note or a spreadsheet updated at the end of each shift is enough. The form does not matter; the habit does.

When your record and the W-2 disagree

It happens, and the response depends on the direction.

If the W-2 shows less than your record, do not simply claim the larger figure and move on. Ask your employer first — a payroll correction produces a corrected W-2, which is a much stronger position than a return that disagrees with the form the IRS also received.

If the W-2 shows more than your record, that is worth resolving too, because it may mean you are being taxed on tips you distributed to others. Again, the employer is the first stop.

If the disagreement is about overtime, check whether you and the employer are computing the premium the same way before assuming an error. This is the most common source of an apparent discrepancy that turns out not to be one.

How long to keep it

General retention guidance for tax records runs to several years after filing, and the exact period depends on the situation. For records supporting a deduction claimed on a return, keeping them for the period during which the return can be examined is the sensible baseline. The IRS publishes its own record retention guidance and it is worth reading once rather than guessing.

Because these provisions run through 2028 under current law, someone claiming them every year will accumulate several years of records before the first year's can be discarded. Plan the storage accordingly — a folder per tax year is easier than a pile.

Quick answers

  • Do I have to report cash tips? Yes. The deduction did not change reporting obligations. Tips are taxable income whether or not a customer used a card.
  • Can I claim a deduction on tips I did not report? The deduction applies to qualified tips reported as income. Claiming a deduction for unreported income is not a strategy; it is a contradiction.
  • What if I changed jobs mid-year? Add the figures from each W-2. The ceiling applies to your total, not to each employer separately.
  • My occupation is not obviously a tipped one. Eligibility turns on whether your occupation is one that customarily received tips. Our guide to who qualifies covers this.

Once you have your figures, the overtime calculator separates the premium from the base rate for you, and the tips calculator applies the ceiling and phase-out. Running both before filing is a cheap way to catch a reconciliation problem while there is still time to ask your employer about it.