Reporting Tips on Your
Tax Return(p4)

Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; Form 1040EZ, line 1; Form 1040NR, line 8; or Form 1040NR-EZ, line 3.

Generally, you must report all tips you received in 2011 on your tax return, including both cash tips and noncash tips. Any tips you reported to your employer as required in 2011 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.

However, any tips you received in 2011 that you reported to your employer as required after 2011 but before January 11, 2012, are not included in the wages shown in box 1 of your 2011 Form W-2. Do not include the amount of these tips on your 2011 tax return. Instead, include them on your 2012 tax return. Tips you received in 2010 that you reported to your employer as required after 2010 but before January 11, 2011, are included in the wages shown in box 1 of your 2011 Form W-2. Although these tips were received in 2010, you must report them on your 2011 tax return.

If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report on your income tax return any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees.

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 2011) on June 30 and received $10,000 in wages during the year. Ben 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 + $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, Form 1040NR, Form 1040NR-EZ, Form 1040-SS, or 1040-PR (as appropriate) for this purpose. (You cannot file Form 1040EZ or Form 1040A.)

Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, 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 2011, 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.

If you worked in the U.S. possessions and received Form W-2AS, Form W-2CM, Form W-2GU, or Form W-2VI, any uncollected taxes on tips will be shown in box 12 with codes A and B. If you received Form 499R-2/W-2PR, any uncollected taxes will be shown in boxes 22 and 23.

To report these uncollected taxes, you must file a return even if you would not otherwise have to file. You can report these taxes on Form 1040, in the space next to line 60; Form 1040NR, line 59; Form 1040-SS, Part I, line 5; or Form 1040-PR, Part I, line 5. See the instructions for the appropriate form and line number indicated. (You cannot file Form 1040A, Form 1040EZ, or Form 1040NR-EZ.)

If you receive tips as a self-employed person, you should report these tips as income on Schedule C or C-EZ. See Publication 334, Tax Guide for Small Business, for more information on reporting business income.