Tax Tips on Tip Income

If you work in an occupation where tips are part of your total compensation, you need
to be aware of several facts relating to your federal income taxes. Here are four things
the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and
Medicare taxes. The value of non–cash tips, such as tickets, passes or other
items of value, is also income and subject to tax.

2. 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.

3. Report tips to your employer. If you receive $20 or more in tips in any one
month, you should report all of your tips to your employer. Your employer is
required to withhold federal income, Social Security and Medicare taxes.

4. 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.