Reporting Tips | FAQ
Tips are a great bonus when working in the service industry, but there are some tax considerations with this extra income. Here are answers to some of the frequently asked questions about reporting tips:
Who needs to report tips?
All employees who receive tips, directly or indirectly, need to report them. This includes employees who receive tips through tip pools, tip splitting, or other tip sharing arrangements.
What’s considered a tip?
A tip is a discretionary amount or gift given by a customer to an employee for services they received. Tips may include:
Cash payments
Electronic payments, such as credit card, debit card, or gift cards
Noncash tips such as tickers or other items of value
Amounts received from tip pools, tip splitting, or other tip sharing arrangements
Service charges or gratuity fees for large parties that are automatically added to a customer’s bill are not considered tips.
What are my responsibilities as an employee?
Tips must be reported to your employer and on your tax return. If your workplace participates in a tip pooling program or something similar then you only need to report the amount of tips you take home.
As an employee, you should keep a daily tip record. Your records should include the date and cash value, for cash and non-cash items, of your tips for that day. Some options for keeping daily tip records include IRS Form 4070-A, a journal, or a spreadsheet.
How do I report tips to my employer?
If your tips total more than $20 for the month, you must report them to your employer. Reporting tips to your employer helps them calculate how much payroll tax to withhold from your tips.
Tips should be reported to your employer by the 10th of the month following the month you received your tips. Your employer may direct you to use IRS Form 4070 or another tip reporting method. When reporting tips to your employer, you should include the total tips received during the month, the month or period your tips cover, your name, address, and social security number, the employer’s name and address, and your signature.
How do I report tips on my tax return?
All tips, cash and non-cash, are considered income and are subject to Federal income, Social Security, and Medicare tax. Tips reported to your employer are accounted for on your Form W-2 under wages, tips, and other compensation.
If you had periods where your tips totaled less than $20 for the month and didn’t report them to your employer, then you must use Form 4137 to figure and pay your Social Security and Medicare tax on unreported tip income.
Need help filing your tax return?
Whether you need to file a simple 1040 or require more complex and detailed schedules and forms, we can help! Give us a call at (360) 922-0235 and we’ll match you with the best tax preparer for your situation!
Disclaimer: This material is prepared for informational purposes only, and is not tax advice. Please speak with a tax professional or view the resources below to see how this information may apply to you.
