Landmark Tax Group

Important Reminders about Tip Income

INTERNAL REVENUE SERVICE – If your pay from your job includes tips, the IRS has a few important reminders about tip income:

  • Automatic gratuities are considered wages. Beginning January 2014, the IRS will treat automatic gratuities, tips that are charged for larger parties, as regular wages for tax purposes. Such tips will now be treated as “service charges” by the IRS and be subject to payroll tax withholding.
  • Tips are taxable. Individuals must pay federal income tax on any tips they receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
  • Include all tips on your return. You must include all tips that you receive during the year on your income tax return. This includes tips you received directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
  • Report tips to your employer. If you receive $20 or more in cash tips in any one month, you must report your tips for that month to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips.
  • Keep a daily log of tips. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tips.

See: Taxable and Non-taxable Income

See: 6 Ways to Reduce Your Chance of an IRS Audit

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For immediate assistance with tip income, or another tax matter, contact us today at 1-714-382-6780 for a FREE and CONFIDENTIAL consultation with our CPAs and former IRS Agents. 

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