Are tips taxable in California?
California tax on tips in 2026
- The Franchise Tax Board (FTB) taxes tips in full for 2026, with no state tips deduction.
- The IRS lets workers in tipped jobs deduct up to $25,000 of voluntary tips a year for 2025 through 2028. The IRS reduces the deduction above $150,000 of income ($300,000 joint).
- Workers report tips of $20 or more a month to the employer by the 10th of the next month.
A Gaslamp server who reports $20,000 in tips in 2026 owes California tax on all of it.
Does California tax tips?
California taxes tips as wages.
No state tips deduction
California has no tips deduction for 2026: Senate Appropriations held SB 984, the proposed state version, in committee on May 14, 2026.
Service charges
The Employment Development Department (EDD) treats banquet tips and service charges an employer pays out as regular wages. Restaurants owe sales tax to the California Department of Tax and Fee Administration on mandatory gratuities and service charges, and none on voluntary tips (Publication 22, 2025).
Minimum wage and tips
Employers in the city cannot count tips toward the minimum wage of $17.75 an hour in 2026. From July 1, 2026, hotels and amusement parks under the City's Hospitality Minimum Wage Ordinance pay at least $19.00 an hour, and event centers $21.06.
How to report tips in California
Tipped workers keep a daily tip record and report from it:
Report by the 10th
Employees report cash tips, card tips included, on Form 4070 or a written statement by the 10th of the next month once they reach $20 in a month.
Employer withholds
Employers withhold federal and state income tax, State Disability Insurance (SDI), Social Security and Medicare from wages and reported tips.
File the return
Workers report unreported tips on Form 4137 for Social Security and Medicare, and all tips on Form 540.
Are tips taxable in California: a Gaslamp server example
The server deducts the tips federally but pays California about $963 on them.
The server, a single filer at a Gaslamp restaurant outside a hotel, works 2,080 hours at $17.75 for $36,920 of wages and takes the $5,900 California standard deduction.
| Item | Amount |
|---|---|
| Federal tips deduction | $20,000 |
| California tax with tips | $1,546 on $51,020 of taxable income |
| California tax without tips | $583 on $31,020 of taxable income |
| California tax on the tips | $1,546 − $583 = $963 |
| SDI on the tips | $20,000 × 1.3% = $260 |
| Social Security and Medicare | $20,000 × 7.65% = $1,530 |
Amounts from FTB's 2026 Schedule X, before the personal exemption credit.
Free filing help for tipped workers
Volunteer Income Tax Assistance (VITA) sites prepare returns free for people who generally earn about $70,244 or less (2026), and each site sets its own limits: free tax preparation San Diego.