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Aside from regular wages, many taxpayers have jobs where they get tips from their clients or customers. Generally, income received as a tip is taxable. Here’s some information to help taxpayers correctly report the income they receive as a tip:
Use the Interactive Tax Assistant.
This tool on IRS.gov asks taxpayers a series of questions.
After the taxpayer answers the questions, the tool gives responses based on the
answers. Taxpayers can use the Interactive Tax Assistant to find out if their
tip income is taxable.
Show all tips on a tax return.
Taxpayers use Form 4137, Social Security and Medicare Tax on Unreported
Tip Income, to report the amount of any unreported tip income. This form allows
the taxpayer to include it as additional wages. This includes the value of
non-cash things someone receives as a tip, such as tickets or passes to an
event.
Report all types of tips.
Taxpayers must pay tax on all tips received during the year, including those:
Report tips to an employer.
Employees who receive $20 or more in tips in any month must report their tips
for that month to their employer. They must do so by the 10th day of the next
month. When reporting tips, the employee should include cash, check and credit
card tips they received. The employer must withhold federal income, Social
Security and Medicare taxes on these reported tips.
Keep a daily log of tips.
Taxpayers use Publication 1244, Employee’s Daily Record of Tips and
Report to Employer, to record tips. This will help report the correct amount of
tips on their tax return.
