Resources
- IRS Publication 531: Reporting Tip Income
- IRS Publication 1244: Employee’s Daily Record of Tips and Report to Employer
- Form 4070A: Employee’s Daily Record of Tips
Why YOU Should Care
If you receive income from tips, you are required to report them as part of your gross income for the year in which they are received. These tips are subject to federal taxation and, depending on your state of residence, may be taxed at the state level as well.
What is “Tip Income”?
Tip Income includes tips you receive directly, tips received on credit cards charged to your employer, and your share of any tip pools or splitting arrangements. The value of any non-cash tip must also be included in your gross income.
Recording Tip Income to your Employer
The IRS recommends that individuals receiving tip income keep a daily tip record so they can report these amounts to their employers and make sure the income is reported properly on their personal income tax return. Tips must be reported to your employer so they are able to properly withhold on your income for federal and state income tax, Social Security, and Medicare. The only exception is if your total tips for the month are $20 or less – tips below that level should be reported on your personal tax return but do not need to be reported to your employer.
A daily tip record would consist of either a diary in which tips are recorded or copies of receipts or bills showing tip income. One way to maintain a tip record is to complete the Form 4070A. If your employer provides an electronic method to record and report tips, be sure you receive a print-out or other digital copy for your personal records. These records will also serve as proof if tip income on the tax return is ever called into question.
Reporting Tip Income on your Tax Return
If all tips have been properly reported to your employer throughout the year, these monies should appear on your Form W-2 in Box 1. This income should then be reported with your wages on your personal tax return. If any tips received were not reported to your employer, they should still be reported on your tax return for the year. Add any unreported tips to the total tips and wages reported by your employer.
If your employer allocates tips to you, these will be reported in Box 8 of your Form W-2. These amounts should also be reported with wages on your personal income tax return.
