IRS issues guidance on tip reporting

Generally, income received in the form of tips is taxable. The IRS has issued some guidance to help employees correctly report the income they receive as a tip:

Use the Interactive Tax Assistant.

The ITA tool is a tax-law resource that asks employees a series of questions and provides a response based on the answers. Employees can use “Is My Tip Income Taxable?”

Show All Tips on a Tax Return.

Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to report the amount of any unreported tip income to include 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.

Employees must pay tax on all tips received during the year, including those: (1) directly from customers, (2) added to credit cards, and (3) from a tip-splitting agreement with other employees.

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 by the 10th day of the next month, including cash, check and credit card tips received. The employer must withhold federal income, social security and medicare taxes on the reported tips.

Keep a Daily Log of Tips.

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 a tax return. (IRS Tax Tip 2018-62, April 24, 2018.)

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