Service Charges vs. Tips on the 2026 W-2 (Box 12 Code TP)

Box 12 code TP reports "the total amount of cash tips reported to the employer" (IRS 2026 W-2/W-3 instructions). Restaurants, salons and hotels often also collect mandatory service charges, and the two are easy to mix up in payroll.

The rule

Per the IRS instructions, mandatory service charges are not qualified tips, so they generally stay out of TP. Your facts may differ, for example if a "charge" is really voluntary.

What to do before year-end

Split tips reported by employees from service-charge payouts in your payroll register.
Report only reported cash tips in TP, and list a Box 14b occupation code for each employee with TP.
Ask your CPA about any charge that customers can change or decline.

Doing this for real payroll? The 2026 W-2 Tips & Overtime Kit (an educational kit, not tax advice) includes a year-end checklist, a payroll-to-TP/TT workbook and a guide to the IRS tipped-occupation codes, for one business ($149) or up to 25 client businesses ($399). See the kit

Sources

Educational kit, not tax advice. This page summarizes the IRS 2026 General Instructions for Forms W-2 and W-3 as read on October 30, 2026. It is not tax, legal or payroll advice; confirm with your CPA, enrolled agent or payroll provider and check current IRS instructions before you file. Swift Labs is not affiliated with the IRS.