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Tip income and how it affects your taxes

October 5, 2017

 

Whether you work in food service, drive a cab, or clean houses for a living, if you receive substantial income from tips, the IRS wants you to know how your taxes may be affected.

 

The IRS requires that all tips are listed on the tax return. This includes the value of non-cash tips such as tickets, passes, or other items. The bottom line is that all tip income must be reported.

 

It is important to remember that all tips are taxable. This includes tips directly from customers and tips added to credit cards. This also includes an employee’s share of tips received from a tip-splitting agreement with other employees. 

 

All tip amounts should be reported to the employer. If an employee receives 20 dollars or more in any one month, it must be reported for that month to the employer by the 10th day of the next month. Only include cash and check and credit card tips received. The employer must withhold federal income, Social Security, and Medicare taxes on the reported tips. 

 

It’s an important for tax payers to 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 the tax return.

 

For more on this topic, see Publication 531, Reporting Tip Income. You can get it on IRS.gov.

 

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.