Starting in 2026, employers using UKG must report tips correctly on the W-2 to support the new No Tax on Tips deduction, and tip tracking commonly breaks down before that data reaches payroll. CloudApper Tips Management for UKG keeps tip data accurate from the point it's earned.
Table of Contents
- A quick refresher: what’s a W-2, and what’s new on it
- What counts as a tip, and what doesn’t
- Where tip pools and job transfers usually trip people up
- A quick checklist before your first 2026 payroll run
- How CloudApper Tips Management for UKG makes this easy
- Common questions
- Want help checking your setup?
If you run HR or payroll for a restaurant, hotel, or casino, you’ve probably heard about the new “No Tax on Tips” tax break. It’s good news for tipped employees. But it only works if your records show exactly who earned what.
Starting with tips earned in 2025, eligible employees can deduct up to $25,000 a year in tips from federal income tax, through 2028, phasing out above $150,000 a year ($300,000 for couples). The catch: employees can only claim it if the employer’s records are accurate, and starting in 2026, that has to show up on the W-2 itself. That’s the exact gap CloudApper Tips Management for UKG is built to close, so tip data is right from the moment it’s earned instead of reconstructed at tax time.
A quick refresher: what’s a W-2, and what’s new on it
A W-2 is the yearly earnings report an employer sends to each employee and the IRS: what they earned, what was withheld, and what they file their taxes with.
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Starting with 2026 pay, tipped employees’ W-2s need two new details: total qualifying tips (code “TP” in Box 12), and which tipped job the employee actually worked, using a government job code called a Treasury Tipped Occupation Code, or TTOC (Box 14b). A server, a bartender, and a valet each get their own TTOC, and it’s not the same list as your UKG job titles, so someone has to map one to the other first.
What counts as a tip, and what doesn’t
Cash tips, card tips, and tip-pool payouts all count. Mandatory fees don’t, even when they land in the same bucket on a receipt. A customer choosing to leave a $20 tip is a tip; a restaurant automatically adding an 18% charge for a party of six is a service charge, and it doesn’t qualify no matter how similar it looks in your system. That mix-up is one of the most common reasons this goes wrong.
Where tip pools and job transfers usually trip people up
A tip pool is when several employees share tips, say, servers splitting a portion with bartenders and hosts. The W-2 needs to show what each person actually received, not just a shift total, and the same goes for job transfers: someone who bartends four hours and hosts four needs tips tied to the job they were doing at the time.
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None of this is a UKG issue; UKG Ready, Pro, and Dimensions handle time, pay, and scheduling well. The gap is almost always upstream, in how tips get entered before reaching payroll.
A quick checklist before your first 2026 payroll run
- Match every tipped job title to its official TTOC.
- Record tips and mandatory fees as two separate things everywhere tips get entered.
- Confirm your tip pool tracks who actually earned what, not just shift totals.
- Check that employees switching between tipped roles get credited by job.
- Run a test W-2 before the real one, while there’s still time to fix mistakes.
How CloudApper Tips Management for UKG makes this easy
CloudApper Tips Management for UKG captures tips right when they’re earned, at a shared kiosk, a tablet, or your existing time clock, and keeps them separate from mandatory fees from the start. Tip pool payouts are tracked person by person, and once job titles are mapped to TTOCs, that mapping applies automatically everywhere, so nobody’s redoing it per new hire or location. It flows straight into UKG Ready, Pro, or Dimensions in a form your payroll team can use.
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Already tracking tips for minimum-wage compliance? You’re most of the way there. The main new piece is TTOC mapping, and we help UKG customers set that up fast.
This article is general information based on publicly available guidance, not tax or legal advice. Check with your payroll provider or a tax advisor about how this applies to your business.
Common questions
Do I need to do anything for the new tips tax law, or does it happen automatically?
You need to act. The deduction only works if your payroll system can show accurate, itemized tip data for each employee. UKG gives you the payroll foundation, but capturing, sorting, and mapping tips correctly is a setup step your team, or a solution like CloudApper Tips Management for UKG, needs to handle.
What exactly is a W-2?
A W-2 is the official yearly earnings report an employer sends to an employee and the IRS. It shows what someone earned and what taxes were withheld, and it’s the document employees use to file. Think of it as a year-end summary of the paycheck, not a new form; the new part for 2026 is what tipped employees’ W-2s now have to include.
What is a TTOC?
TTOC stands for Treasury Tipped Occupation Code. It’s simply a government code for a tipped job, similar to how your payroll system already assigns a job code internally. A server has one code, a bartender has another, a taxi driver and a golf caddie each have their own. Your UKG job titles and the government’s TTOC list weren’t built to match automatically, so someone has to connect “Bartender – Banquet” or “Valet Attendant” to the correct official code before Box 14b on the W-2 can be filled in correctly.
Will UKG automatically fix this for me?
UKG Ready, Pro, and Dimensions give you a solid payroll and time-tracking foundation, but separating tips from mandatory fees, tracking tip pools by individual, and matching job titles to TTOCs happens before that data ever reaches UKG. That’s the piece CloudApper Tips Management for UKG adds.
What’s the difference between a tip and a service charge?
A tip is something a customer chooses to give: cash, a card tip, or a share of a tip pool. A service charge, like an automatic gratuity added to a big group’s bill, isn’t optional, so it doesn’t count as a qualified tip under this law, even though many POS systems and staff treat the two the same way at the register.
What is a tip pool, and how should it be tracked?
A tip pool is when several employees share tips, for example servers splitting a portion with bartenders, hosts, or kitchen staff. For W-2 purposes, the record has to show what each individual person actually received, not just a total for the shift or the location. A system that can only report “the whole shift earned $500” can’t produce the breakdown the IRS is asking for.
Why do job transfers matter for tip reporting?
Because tips need to be tied to the specific job someone was doing when they earned them, not just to their paycheck as a whole. Someone who works four hours as a bartender and four as a host should have their tips split between those two roles and reported under the right occupation code for each, which means the tracking needs to follow their actual punches and job transfers, not just their shift total.
Can you walk through a simple example?
Say a server earns $300 directly from customers and receives another $50 from the restaurant’s tip pool, with no automatic service charges involved. The employer should record $350 in qualified tips for that employee, connect it to their server occupation code, and report it correctly on their W-2. Get any one of those three pieces wrong, cash tips, pool distribution, or occupation code, and the employee’s deduction won’t reflect what they actually earned.
What happens if we don’t get this fixed before tax season?
Your tipped employees may not get the full deduction they’re entitled to, and you may end up correcting W-2s after the fact. It’s easier to fix the setup now than to unwind mistakes in January.
Want help checking your setup?
Contact CloudApper and we’ll look at how your tips are tracked in UKG today, tell you exactly what needs to change, and show you how Tips Management for UKG handles the rest.
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