The simple answer is yes, the IRS treats tips as taxable income. If you earn tips, then you're responsible for paying income, Social Security, and Medicare tax on that tip money.

How much tax do servers pay on tips?

If your tips each month are $20 or more, they're taxable income. They're also subject to Social Security and Medicare tax withholding. If you receive $20 or more per month in cash tips, report that income to your employer. Your employer will report your tip income on your W-2, Box 7 (Social Security tips).

What percentage of tips is a waitress required to report?

The law requires your employees to report 100% of tip income and the 8% threshold is only one way that the IRS monitors compliance and flags under reporting restaurants.