Tip Reporting What You Need To Know

The IRS recently sent the following reminder for tip reporting:
People who work in restaurants, salons, hotels, and similar service industries often receive tips for the customer service they provide. Tips are generally taxable income, and it's important for people working in these areas who regularly receive tips to understand the requirements for reporting tips.

Tips are optional cash or noncash payments customers make to employees.

Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer, and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on the employee's Form W-2, Wage and Tax Statement.

Noncash tips are those of value received in any medium other than cash, such as tickets, passes, or other goods or commodities a customer gives the employee. Employees don’t report noncash tips to their employer, but they must report the value of them on a tax return.

Any cash tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.

Employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month they received the tips.

The employee can use Form 4070, Employee's Report of Tips to Employer, available in Publication 1244, Employee's Daily Record of Tips and Report to Employer, or they can use an employer-provided form or other electronic system used by their employer.

For more information on how to report tips, taxpayers should review the Tip Recordkeeping and Reporting page of IRS.gov.

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