A Guide to Tip Income Reporting for Employees Who Receive Tip Income Publication 3148 (Rev. 12-2021) Catalog Number 26307C Department of the Treasury Internal Revenue Service www.irs.gov
| A Guide to Tip Income Reporting for Employees Who Receive Tip Income Publication 3148 (Rev. 12-2021) Catalog Number 26307C Department of the Treasury Internal Revenue Service www.irs.gov |
| No text to extract. |
| If you work and receive tips, this guide is for you. The tip income you receive as an employee from the services whether cash or included in a charge — is taxable income. As taxable income, these tips are subject to federal income tax, social security and Medicare taxes, and may be subject to state income tax as well. The Internal Revenue Service (IRS) has prepared this guide to aid the employee who may need answers to tip income reporting questions. 3 |
|
What tips do I have to report?
Do I have to report allmy tips to my boss? Sometimes I don’t get tips directly from
If you received $ 20.00 or more in tips in any one month, you
customers, but rather from another
should report all your tips to your employer so that federal
employee. Do I need to report those tips?
income tax, social security and Medicare taxes, and maybe
Yes. Employees who receive tips from another employee are
state income tax can be withheld.
required to report “tip-outs.” Employees often disburse tips out
of their earned tips to another employee. Remember, all tips are
Do I have to report allmy tips on my tax
taxable income.
return?
Yes. All tips are taxable income and should be reported on your
Do I have to report tip-outs that I pay to
tax return.
other employees?
No. You report to your employer only the amount of tips you
I was told that I had to report only a
retain. However, you must maintain records of tip-outs with
certain percentage of my total sales as
your other tip income (cash tips, charged tips, split tips, tip
tips. Is this true? pool).
No. You must report to your employer all (100%) tips you
receive, except for the tips from any month that do not total at
least $20.00.
4
|
|
What records do I need to keep?
n A tip examiner could review your employer’s books and records.
What type of records do I have to keep?
The examination could reveal unreported tip income that you
You must keep a running daily log of all your tip income. You
may later need to verify.
can use Publication 1244, Employee’s Daily Record of Tips and
n An Internal Revenue Service Center may run a match of your in-
Report to Employer, to record your tip income for one year.
come information from your Form 1040, U.S. Individual Income
Publication 1244 includes Form 4070, Employee’s Report of Tax Return, with the income information from your Form W-2. If
Tips to Employer, and Form 4070A, Employee’s Daily Record of these figures do not match, you could receive a notice about the
Tips. These forms have spacing for you to log your name, the discrepancy and a possible examination of your tax return.
employer’s name and address, date tips were received, date of
entry, cash and charge tips received, tips paid out, and name
of employee paid. Your daily log would be your best proof
should your income tax return be questioned. For a free copy
of Publication 1244, call the IRS at 1-800-829-3676.
What can happen if I do not keep a
record of my tips?
If it is determined in an examination that you underreported
your tip income, the IRS will assess the taxes you owe based
on the best available records of your employer. Tip income
adds up. Underreporting could result in you owing substantial
Federal Income, Social Security and Medicare penalties, and
interest.
If I report all my tips to my employer, do I
still have to keep records?
Yes. You should keep a daily log of your tips so that in case of
an examination, you can substantiate the actual amount of tips
received. There are a number of reasons why you might need
records:
n Your return could be randomly selected for a federal income tax
examination.
For example: Your Form 1040, U.S. Individual Income Tax Return,
establishes that you have your own home, two cars, and three
exemptions, and your Form W-2 shows that you earned only $10,000
in income. In this scenario, an examination may occur if the examiner
determines that income may have been underreported.
5
|
|
How does this affect my income
tax filing?
I forgot to report my tip income to my What’s in it for me if I report all my tip
employer, but I remembered to record it income?
There are many good reasons why you want to report all
on my federal income tax return. Will that
your tip income:
present a problem?
If you do not report your tip income to your employer, but you n Increased income may improve financing approval when apply-
do record the tip income on your federal income tax return, you ing for larger loan amounts (mortgage, car, and other loans)
may owe a 50% social security and Medicare tax penalty and n Increased worker’s compensation benefits, should you get hurt
be subject to a negligence penalty and possibly an estimated on the job
tax penalty. When you do not report your tips to your employer, n Increased unemployment compensation benefits
it places your employer at risk of possible assessment of the n Increased social security and Medicare benefits (the more you
employer’s share of social security and Medicare taxes. pay, the greater your benefits)
n Increased employee pension, annuity, or 401(k) participation
If I report all my tips but my taxes on the
n Check with your employer for other increased benefits (based
tips are greater than my pay from my on pay) that your company may offer, such as life insurance,
employer, how do I pay the remaining disability payments, and the right to purchase stock options
n Compliance with the tax law
taxes?
You can either pay the tax when you file your federal income
tax return or you can reach into your tip money and give some
to your employer to be applied to those under-withheld taxes.
Employer will then record these taxes and you will get credit on
your Form W-2. If you wait to pay when you file your tax return,
you may be subject to an estimated tax penalty.
What can happen if I don’t report my tips
to the IRS?
If the IRS determines through an examination that you
underreported your tips, you could be subject to additional
federal income tax, social security and Medicare taxes, and
maybe state income tax. Also, a penalty of 50% of the additional
social security and Medicare taxes, and a negligence penalty of
20% of the additional income tax, plus interest, may apply.
6
|
|
Is tip reporting unique to a
specific industry?
Does tip income reporting apply only to Why has tip reporting become such an
employees in a specific industry? issue?
No. Anyone who receives tip income is required by law to report To report all tip income has always been the law. The IRS has
it to his or her employer. The Tip Rate Determination/Education put greater emphasis on reporting tip income over the past
Program (TRD/EP) was first promoted in the gaming industry few years because a significant number of taxpayers are not
(casino industry) in Las Vegas, Nevada, and subsequently reporting all their tip earnings as taxable income.
to the food and beverage industry. Other individuals that
receive tip income include airport skycaps, bartenders, hair
stylists, bellhops, casino workers, delivery service people, golf
caddies, hotel housekeepers, manicurists, masseuses, parking
attendants, railroad redcaps, and taxi drivers.
Why should I report my tips to my
employer?
When you report your tip income to your employer, the employer
is required to withhold federal income taxes, social security and
Medicare taxes, and maybe state income tax.
Tip reporting may increase your social security credits resulting
in greater social security and Medicare benefits when you retire.
Tip reporting may also increase other benefits to which you
may become entitled, such as unemployment benefits, worker’s
compensation, or retirement benefits. Additionally, a greater
income may improve financing approval for mortgage, car, and
other loans.
7
|
|
What is this compliance program
I’ve heard about?
My employer has entered into a GITCA-What is my responsibility, as an
compliance agreement with the IRS employee, under the Gaming Industry Tip
concerning tips. What is this? Compliance Agreement?
The Tip Rate Determination/Education Program was developed You are required to file your federal tax returns. You may
in 1993 to help those employees receiving tip income and their be asked to sign a Model Gaming Employee Tip Reporting
employers understand the laws on reporting tip income. Under Agreement proclaiming you are participating in the program.
this program, and depending on your specific business, your The employer, as a participant in the GITCA, has agreed with
employer may enter into one of three arrangements — the the IRS to a tip rate for the employer’s establishment. To stay
Tip Rate Determination Agreement (TRDA), the Tip Reporting a participating employee, you must report tips at or above the
Alternative Commitment (TRAC), or Gaming Industry Tip tip rate determined by the agreement. Furthermore, as part of
Compliance Agreement (GITCA). Ask your employer for more the GITCA arrangement, the employer is required to report your
information about this program. name, social security number, the hours worked or sales made,
your job classification, venue, shift and your reported tips to
TRDA–What is my responsibility, the IRS if you do participate in the program.
as an employee, under the Tip Rate
Determination Agreement?
You are required to file your federal tax returns. You may be
asked to sign a Tipped Employee Participation Agreement
proclaiming you are participating in the program. The employer,
as a participant in the TRDA, has agreed with the IRS to a tip
rate for the employer’s establishment. To stay a participating
employee, you must report tips at or above the tip rate
determined by the agreement. Furthermore, as part of the
TRDA arrangement, the employer is required to report your
name, social security number, the hours worked or sales made,
your job classification shift, and your reported tips to the IRS if
you do not participate in the program.
8
|
|
TRAC–What is my responsibility, as
an employee, under the Tip Reporting
Alternative Commitment?
Directly-tipped employee:
n Your employer will furnish you with a written statement (at least
monthly) reflecting your charged tips
n You are to verify or correct this statement
n You are to indicate the amount of cash tips received
n When reporting your cash tips, you should remember that there
is a correlation between charged tips and cash tips.
(Your employer may be able to inform you of the establishment’s
charged sales to cash sales ratio. For example, if the establishment is
50% charge and 50% cash, and you received and reported $100 in
tips on charged receipts, it is reasonable to believe that you should be
reporting close to $100 in cash tips.)
n You may be asked to provide the name and amount of any tip-
outs to indirectly-tipped employees. Does tip income reporting
apply only to employees in a specific industry?
Indirectly-tipped employee:
n You are required to report all your tips to your employer. If the
establishment has the directly-tipped employee provide the
name and amount of tips shared with you, the establishment
could provide you with a statement of tips that you would need
to verify or correct.
9
|
|
The IRS provides the following publications and forms
relating to tip income reporting. These products can be
downloaded from the IRS Web site at www.irs.ustreas.gov
and ordered through the IRS by dialing 1-800-829-3676.
(TTY/TDD equipment access, dial 1-800-829-4059)
Pub 505 – Tax Withholding and Estimated Tax
Pub 531– Reporting Tip Income
Pub 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 1040ES – Estimated Tax for Individuals
Form 4137 – Social Security and Medicare Tax on Unreported Tip Income
Visit: www.IRSVideos.Gov
Search: Tip Reporting
10
|
| No text to extract. |
| No text to extract. |