Remember the following if you receive tips from customers:
- Tips are taxable. You must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
- Include all tips on your return. You must include the total of all tips you received during the year on your income tax return. This includes tips directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
- Report tips to your employer. If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.
- Keep a daily log of tips. You can use any means of keeping your log. See IRS Publication 1244 to see the types of information that should be included in a tip log.
IRS Circular 230 Disclosure
Pursuant to IRS Regulations, we inform you that any tax advice provided or implied on this post (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.
While the information contained in this post is believed to be reliable, we cannot guarantee its accuracy or completeness.