This chapter is for employees who receive tips.
All tips you receive are income and are subject to federal income tax. You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement.
The value of noncash tips, such as tickets, passes, or other items of value are also income and subject to tax.
Reporting your tip income correctly is not difficult. You must do three things.
- Keep a daily tip record.
- Report tips to your employer.
- Report all your tips on your income tax return.
This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. This chapter will also show you how to treat allocated tips.
You may want to see:
Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137: Social Security and Medicare Tax on Unreported Tip Income 4070: Employee's Report of Tips to Employertaxmap/pub17/p17-028.htm#en_us_publink1000171359taxmap/pub17/p17-028.htm#en_us_publink1000171360 taxmap/pub17/p17-028.htm#en_us_publink1000171361
You must keep a daily tip record so you can:
- Report your tips accurately to your employer,
- Report your tips accurately on your tax return, and
- Prove your tip income if your return is ever questioned.
There are two ways to keep a daily tip record. You can either:
- Write information about your tips in a tip diary, or
- Keep copies of documents that show your tips, such as restaurant bills and credit card charge slips.
You should keep your daily tip record with your personal records. You must keep your records for as long as they are important for administration of the federal tax law. For information on how long to keep records, see Publication 552, Recordkeeping for Individuals.
If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. Publication 1244 includes a 1-year supply of Form 4070A. Each day, write in the information asked for on the form.
If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). Then, each workday, write the date and the following information.
- Cash tips you get directly from customers or from other employees.
- Tips from credit card charge customers that your employer pays you. (Also include tips from debit card charge customers.)
- The value of any noncash tips you get, such as tickets, passes, or other items of value.
- The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips.
Do not write in your tip diary the amount of any mandatory service charge that your employer adds to a customer's bill and then pays to you and treats as wages. This is part of your wages, not a tip.
You can use an electronic system provided by your employer to record your daily tips. If you do, you must receive and keep a paper copy of this record.