A Guide to Tip Income Reporting for Employers in Businesses Where Tip Income is Customary Publication 3144 (Rev. 10-2018) Catalog Number 26288G Department of the Treasury Internal Revenue Service www.irs.gov
| A Guide to Tip Income Reporting for Employers in Businesses Where Tip Income is Customary Publication 3144 (Rev. 10-2018) Catalog Number 26288G Department of the Treasury Internal Revenue Service www.irs.gov |
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| If you are an employer of an employee who receives tip income, this guide is for you. The Internal Revenue Service (IRS) began its Tip Rate Determination/Education Program (TRD/EP) in October 1993 for businesses where tip income is customary. The objective of the Program has been to improve and ensure compliance by employers and employees with statutory provisions relating to tip income. 3 |
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The Program of Tip Reporting
What tip reporting options are available?
Tip Rate Determination Agreement (TRDA)
Tip Reporting Alternative Commitment (TRAC)
Institute your own reporting system to comply with the tax law
Gaming Industry Tip Compliance Agreement (GITCA)
Under the Tip Rate Determination/Education Program (TRD/
EP), the employer may enter into a TRDA, a TRAC, or GITCA
agreement, depending on the specific business. The IRS
will assist applicants in understanding and meeting the
requirements for participation. The next pages show how these
agreements differ.
How does the program benefit my
employees?
There are a number of reasons why an employee should report
all of his/her tip income:
Increased income may improve financial approval when
applying for mortgage, car, and other loans
Increased social security and Medicare benefits (the more you
pay, the greater the benefits)
Increased unemployment compensation benefits
Increased employee pension, annuity, or 401(k) participation (if
applicable)
Increased workers’ compensation benefits, should your
employees get hurt on the job
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How To Get Your Program Underway
How To Apply
To enter into one of the agreements by sending an e-mail to
Tip.Program@irs.gov.
Who Should Apply
Currently, the IRS is offering participation in TRD/EP to
employers who employees receive tip income in the normal
course of your business. These agreements accommodate
every tipping industry.
All employers with establishments where tipping is customary
should review their operations.
When To Apply
An employer may apply for one of the agreements, depending
on his/her specific business, at any time. The effective date of
the arrangement is determined by receipt and handling of the
employer’s application.
TRAC and TRDA are effective as of the first day of the quarter
following the date the National Tip Reporting Compliance
(NTRC) Program Manager signs the agreement.
The GITCA is effective on a mutually agreed upon date,
generally the first day of a pay period.
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TRDA vs. TRAC vs. GITCA (how they differ)
TRAC TRDA GITCA
TRAC does not require that a tip rate TRDA requires the IRS to work with GITCA requires the IRS to work with
be established but it does require the establishment to arrive at a tip the establishment to arrive at a tip
the employer to: rate for the establishment’s various rate for the establishment’s various
occupations. occupations.
establish a procedure where
a directly-tipped employee is
provided (no less than monthly) a
written statement of charged tips
attributed to the employee.
implement a procedure for the
employees to verify or correct any
statement of attributed tips.
adopt a method where an
indirectly-tipped employee
reports his or her tips (no less
than monthly). This could include
a statement prepared by the
employer and verified or corrected
by the employee.
establish a procedure where a
written statement is prepared and
processed (no less than monthly)
reflecting all cash tips attributable
to sales of the directly-tipped
employee.
TRAC does not require an TRDA requires the employee to GITCA requires the employee
agreement between the employee enter into a Tipped Employee to enter into a Model Gaming
and employer. Participation Agreement (TEPA) with Employee Tip Reporting Agreement
the employer. with the employer.
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TRAC TRDA GITCA
TRAC affects all (100%) employees. TRDA requires the employer to GITCA requires the employer to
get 75% of the employees to sign get 75% of the employees to sign
TEPAs and report at or above the Model Gaming Employee Tip
determined rate. Reporting Agreements and report at
or above the determined rate.
TRAC provides that if the employees TRDA provides that if employees fail GITCA provides that if employees
of an establishment collectively to report at or above the determined fail to report at or above the
underreport their tip income, tip rate, the employer will provide determined rate, the employer
examinations may occur but only for the names of those employees, will provide the names of those
those employees that underreport. their social security numbers, job employees, their social security
classification, sales, hours worked, numbers, job classification, sales,
and amount of tips reported. hours worked, and amount of tips
reported.
TRAC includes a commitment by the TRDA has no specific education GITCA has no specific education
employer to educate and reeducate requirement. requirement.
quarterly all directly and indirectly-
tipped employees and new hires of
their statutory requirement to report
all tips to their employer.
TRAC participation assures the TRDA participation assures the GITCA participation assures the
employer that prior periods will not employer that prior periods will not employer that prior periods will not
be examined as long as participants be examined as long as participants be examined as long as participants
comply with the requirements under comply with the requirements under comply with the requirements under
the agreement. the agreement. the agreement.
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Example of a TRAC Statement
Use the following “example” to help you develop your
statement for your specific business, and provide a copy
to your employees. (The following example is designed
specifically for employees in the food and beverage industry.)
A TRAC statement is given to an employee showing tips
attributed to him/her. This example not only fulfills the
statement required for charged tips but also for cash tip
reporting and for indirectly-tipped employee reporting.
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Employer Portion Employer fills out top portion.
Employee Name: Mark Doe Gross Sales: only include
Employee Address: 123 Main Street food & drink amount. Do not
City, State, Zip: Any Town, USA 12345 include tax, tip, or non-food/
“title” Employee SSN: 000-00-000 drink items.
Job Category: Food Server Charged Sales: include
Establishment Name: ABC Bar & Grill charged sales that show a tip
Employer EIN: 00-0000000 on food & drink amounts only.
Report Period: 01/01/00 - Do not include tax, tip or non-
01/31/00 food/drink items.
(A charged sale with no tip is
Gross Sales: $6,000 included as a cash sale.)
Charged Sales w/Tips $2,000
Charged Tips; $380
Charged Tip Rate 19%
Sales Subject to Cash tips $4,000
Employee Portion Employee fills out bottom
Cash Tips $720 portion. An indirectly-tipped
Cash Tip Rate 18% employee would only receive
(from the employer) the “title”
Tips Shared w/Others portion of the statement filled
Name: Job Category: Amount: out, unless employer captured
Johnny Noname Busser $120 “tips shared w/others” infor-
Total (120) mation from the directly-tipped
employee’s TRAC Statement
Tips Recieved from Others and showed it as “tips received
Name: Job Category: Amount from others”.
Susie Cue Cocktail $100 Employee signs statement
Total 100 and gives a copy to employer,
retaining a copy for his/her
Net tips kept and reportable: $1,080 records. This statement would
satisfy employer’s requirement
under the TRAC arrangement
Employee Signature: Date: and the employee’s require-
ment under the law.
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Forms and Publications
The following is a list of IRS publications and forms relating to
tip income reporting that can be downloaded from the IRS Web
site at www.irs.ustreas.gov and can be ordered through the IRS
by dialing 1-800-829-3676. (TTY/TDD equipment access, dial
1-800-829-4059).
Publication 505 – Tax Withholding and Estimated Tax
Publication 531 – Reporting Tip Income
Publication 1244 – Employee’s Daily Record of Tips and
Report to Employer. This publication includes Form 4070,
Employee’s Report of Tips to Employer, and Form 4070A,
Employee’s Daily Record of Tips.
Form 941 – Employer’s Quarterly Federal Tax Return
Form 1040ES – Estimated Tax for Individuals
Form 4137 – Social Security and Medicare Tax on Unreported
Tip Income
Form 8027 – Employer’s Annual Information Return of Tip
Income and Allocated Tips
Form W-2 – Wage and Tax Statement; and separate
Instructions for Forms
W-2 and W-3
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