Tips are taxable
Do you work at a hair salon, barber shop, casino, golf course, hotel, restaurant, or drive a taxicab? The tip income you receive as an employee from those services is taxable income.
Here are some tips about tips:
— Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes, and may be subject to state income tax as well. The value of non — cash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
— Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip — splitting arrangement with fellow employees.
— Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
— Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.
For a free copy of Publication 1244, call the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).
For more information, check out IRS Publication 531, Reporting Tip Income, or Publication 3148, Tips on Tips. They are available by calling 1-800-TAX-FORM (1-800-829-3676) or by going to the IRS Web site at IRS.gov.
