Tips Are Subject to Taxes

Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income.

Here as some tips about tips:

Tips are taxable. Tips are subject to federal income, social security and Medicare taxes, and may be subject to state income tax as well. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to federal income tax.

Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income. For a free copy of Publication 1244, visit www.irs.gov.

For more information, contact our office. We work with a variety of service related clients and have successfully integrated reporting tips into their daily work routine.

IRS CIRCULAR 230 REQUIRED NOTICE
IRS Regulations require that we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or for the purpose of promoting, marketing or recommending to another party any transaction or tax-related matter.