Tips are fully taxable on your Missouri return. The state has not adopted a version of the federal “No Tax on Tips” deduction that took effect in 2025, so tip income still counts toward your Missouri adjusted gross income and is taxed at rates up to 4.70%. If you work for tips in Missouri, the federal break may lower your IRS bill, but it does nothing for what you owe the state.
Why the Federal Tip Deduction Doesn’t Reduce Your Missouri Bill
The federal “One Big Beautiful Bill,” signed in mid-2025, created a new deduction under IRC Section 224 that lets qualifying workers deduct up to $25,000 of tip income on their federal return for tax years 2025 through 2028. The deduction phases out once modified adjusted gross income exceeds $150,000 for single filers or $300,000 for joint filers, and it only applies to workers in occupations that customarily received tips before 2025 and to tips that are completely voluntary.
The mechanics are what shut Missouri workers out. The federal tip deduction sits below the line: it reduces federal taxable income but not federal adjusted gross income. Missouri starts its own calculation from your federal AGI, so the deduction never enters the state math. The Missouri Department of Revenue has confirmed that federal deductions for tips, overtime, and car loan interest “apply only at the federal level and cannot be claimed on the Missouri individual income tax return, as Missouri statutes do not provide corresponding provisions for these deductions.”1Missouri Department of Revenue. 2025 Individual Income Tax Year Changes
A bill introduced in the Missouri House, HB 198, would have created a state-level subtraction for 100% of tip income beginning in 2026. It has not become law. Until the legislature enacts a matching provision, every dollar of tip income you earn flows into your Missouri taxable income with no special treatment.
How Missouri Taxes Your Tip Income
Missouri adjusted gross income begins with federal AGI and applies the additions and subtractions listed in Missouri Revised Statutes Section 143.121.2Missouri Revisor of Statutes. Missouri Code 143.121 – Missouri Adjusted Gross Income Tip income is already inside federal AGI, whether reported by your employer on your W-2 or added by you on your return, so it carries straight through to the state.
Missouri uses graduated brackets. For 2026, rates run from 2% on the lowest taxable dollars up to 4.70% on income over $9,436.3Missouri Department of Revenue. 2026 Missouri Withholding Tax Formula A full-time tipped worker’s income will almost always sit above that top threshold, which means the effective Missouri rate on each additional tip dollar is 4.70% for most servers, bartenders, and other service employees.
Every form of tip counts. Cash left on the table, amounts written on a credit card slip, and your share from a tip pool are all part of taxable income. Small cash tips that fall below the federal threshold for reporting to your employer still belong on your Missouri return.
Reporting Tips to Your Employer
Federal rules require you to report tips totaling $20 or more in a calendar month to your employer by the 10th day of the following month.4Internal Revenue Service. Topic No. 761, Tips – Withholding and Reporting Your employer uses that number to withhold federal income tax, Social Security, Medicare, and Missouri state income tax. If your monthly tips come in under $20, you don’t have to report them to your employer, but you still owe tax on them and must include them on your annual return.
Your report needs your name, address, Social Security number, the month covered, and the total tips received. Most workers use IRS Form 4070, though any written statement with those elements is acceptable, and many employers offer an electronic system that meets the same standard.5Internal Revenue Service. Tip Recordkeeping and Reporting
Daily records are what hold this together. Keep a log of cash tips from customers, amounts added to card receipts, and anything you paid out to coworkers through a tip pool. Subtract tip-outs before reporting your net figure. Form 4070A gives you a daily template, but any consistent method works. Workers who guess at their cash tips in April are the ones who run into trouble.
Payroll Taxes Still Apply on Every Tip Dollar
The federal $25,000 income tax deduction does not touch payroll taxes. Social Security tax is withheld at 6.2% on earnings up to the 2026 wage base of $184,500, and Medicare tax at 1.45% applies to all earnings with no cap.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates An additional 0.9% Medicare surtax applies to wages above $200,000.
For a Missouri worker, tip income faces three layers: federal payroll taxes (untouched by the new deduction), federal income tax (reduced by up to $25,000 if you qualify), and Missouri state income tax (no deduction available). A server earning $30,000 in tips would see savings on the federal income tax side but still owe the full 7.65% in employee-side FICA and up to 4.70% to Missouri.
Penalties for Underreporting
Consequences stack on both sides when tips go unreported. The IRS may impose a 20% accuracy-related penalty on any underpaid tax resulting from unreported tips, along with interest, and if your total withholding falls short enough for the year, an underpayment of estimated tax penalty as well.4Internal Revenue Service. Topic No. 761, Tips – Withholding and Reporting
Missouri charges its own interest and penalties on underpaid state income tax. Because Missouri starts from federal AGI, any tip income the IRS adds back after an audit flows straight into a higher Missouri liability. Workers audited federally for unreported tips often see a matching state bill shortly after.
Consistent daily record-keeping is the simplest protection. Reconstructing a year of cash tips from memory rarely convinces an auditor; a running log kept through the year resolves most disputes before they start.