If you receive cash tips on your job, you should know a few things about taxes and gratuities. First and foremost, it is absolutely necessary to remember that you must report cash tips as income and pay tax on this tip income. The IRS has ways to find unreported tips and taxpayers may be subject to fines for failure to report cash tips that they receive while working. Here are some tips from the IRS to help you report your tips accurately:
Reporting Cash Tips on Your Tax Return
- Include all tips on your return. You must include on your federal tax return all tips received.This includes the value of tipping than cash, such as tickets, passes or other items. If it is not cash, you must estimate the value of whatever is received and include this information on a tax return.
- All tips are taxable. You must pay federal taxes on any tips you receive during the year. This includes tips directly from customers and those added to credit cards. It also includes tips received their portion shared with other employees agree.
- Report tips to your employer. If you receive $ 20 or more in tips in any one month, you should report your tips to your employer that month. The report should include only those tips received by cash, check, debit or credit card. Do not report the employer the value of tipping than in cash.Your employer is required to withhold federal income tax, Social Security and Medicare tax on tips you reported. Both you and your employer can get in trouble with the IRS for failure to set up a system in this regards that records all cash tips received.
- Keep a daily tip record. Use the Publication 1244 IRS’s Daily Record of Tips and Report to Employer Employee to record their tips. Employees may use Form 4070-A , Employee’s Daily Record of Tips (Daily Record employee’s tips) to keep a diary of their tips, and Form 4070 , Employee’s Report of Tips to Employer(Report of employee to the employer about tipping), to inform the tips they receive. Both forms are available in Publication 1244 , Employee’s Daily Record of Tips and Report to Employer(Daily Record of Tips and Report of the employee to the employer).
For more information, see Publication 531 , Reporting Tip Income available at IRS.gov.
More Information on Reporting Tip Income on Taxes
In addition, the employer can not use these wages without tipping when calculating the available credit under section 45B of the Internal Revenue Code, because these quantities are not “tips”.Common examples of service charges (which is sometimes referred to as automatic gratuity) in the service industries are:
- Fee for a big celebration (restaurant)
- Service charge corkage (restaurant and nightclub)
- Room service fee (hotel and resort)
- Cargo prearranged for help with luggage (hotel and resort) and
- Mandatory fee for delivery ( pizza deliveries or other retail).