Reporting Tips on Your Tax Return(p54)

Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1.

You must report all tips you received in 2010 on your tax return, including both cash tips and noncash tips. Any tips you reported to your employer for 2010 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.

If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2.

• Cash and charge tips you received that totaled less than $20 for any month.
• The value of noncash tips, such as tickets, passes, or other items of value.

Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2010) on June 30 and received $10,000 in wages during the year. John kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required.

Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return.

If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security and Medicare taxes on the unreported tips as additional tax on your return. To report these taxes, you must file a return even if you would not otherwise have to file. You must use Form 1040. (You cannot file Form 1040EZ or Form 1040A.)

Use Form 4137 to figure these taxes. Enter the tax on your return as instructed, and attach the completed Form 4137 to your return.

You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. For more information, see Giving your employer money for taxes, under Reporting Tips to Your Employer, earlier.

If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2010, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). You must report these amounts as additional tax on your return.

To report these uncollected taxes, you must file a return even if you would not otherwise have to file. Include the taxes in your total tax amount on Form 1040, line 60, and write "UT" and the total of the uncollected taxes on the dotted line next to line 60. (You cannot file Form 1040EZ or Form 1040A.)