The tips you receive while working on your job are considered part of your pay. You must include your tips on your tax return on the same line as your regular pay. However, tax is not withheld directly from tip income, as it is from your regular pay. Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. taxmap/pubs/p505-002.htm#en_us_publink10007266
If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month.
If you have more than one job, make a separate report to each employer. Report only the tips you received while working for that employer, and only if they total $20 or more for the month. taxmap/pubs/p505-002.htm#en_us_publink10007267
The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways.
- By withholding at the regular rate on the sum of your pay plus your reported tips.
- By withholding at the regular rate on your pay plus a percentage of your reported tips.
If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage.
If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. If not enough tax is withheld, you may have to pay estimated tax. When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. taxmap/pubs/p505-002.htm#en_us_publink10007269
On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer. Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2
), to cover all your tip income.
If you work in a large establishment that serves food or beverages to customers, your employer may have to report an allocated amount of tips on your Form W-2.
Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax. taxmap/pubs/p505-002.htm#en_us_publink10007271
For more information on the reporting and withholding rules for tip income and on tip allocation, get Publication 531, Reporting Tip Income.