Starting with 2026 pay, W-2s include tips and a job code. Four quick checks now can help you start January with clean records.
Holiday tips are adding up, and this year W-2s have new tip reporting. For pay earned in 2026, employers list each employee’s reported tips on the W-2, along with a code for their tipped job. Those W-2s are due February 1, 2027.
Whether your accountant, a payroll company, or you prepare your W-2s, your POS is where the numbers start. Here are four quick checks to run now.
1. Know a Tip from a Service Charge
A tip is the customer’s choice. They decide whether to leave one and how much.
A service charge is added by the business, like an automatic 18% charge for large parties. The IRS says a service charge doesn’t count as a tip unless the customer can skip or change it.
This matters because the new tax deduction for employees covers tips, not most service charges. Your POS should keep the two apart.
2. Check Your Automatic Gratuity
If you add gratuity to large parties, look at one printed check and ask three questions. Is it labeled clearly? Does it show on its own line? Can the guest change or remove it?
Different systems call it different things, like gratuity, auto-gratuity, or service charge. If you’re not sure how yours is set up, call us and we’ll show you. Your accountant can tell you how it should be treated.
3. Pull Your Tip Reports
Run your tip report for last week and look for two things: tips listed by employee, and any automatic gratuity or service charge listed separately. If you can’t find the report, or it lumps everything together, call us.
Once you can read it, give the totals to whoever prepares your W-2s so the numbers match.
4. Make Cash Tips Easy to Report
Card tips are recorded for you. Cash tips only count if they’re reported.
Employees are required to report cash tips to you by the 10th of the next month once they reach $20 for the month. Under the new rules, reported tips are also the ones that can count toward their tax deduction.
Keep it simple: give your team one short written form, tell them when it’s due, and remind them each month. Not sure what your system can track? Ask us.
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Your accountant or tax preparer can tell you how each amount is reported. Ohio state and city income tax rules can differ from the federal ones, so ask how they apply to tips.
**This is general information, not tax advice.**
For more holiday prep, see our checklist: Is Your POS Ready for the Holiday Rush? and Holiday Gift Cards: A Quick Check Before the Rush.
Already an HCS Customer?
Call us and we’ll help you find your tip reports, check how gratuity is set up and labeled, and show your team how to track tips.
Not an HCS Customer?
If your POS mixes tips and service charges together, or you can’t find a tip report, we can help you find a system that keeps it clear, with real support behind it.