A Guide to Tip Income Reporting for Employees Who Receive Tip Income Publication 3148 (Rev. 10-2018) 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. 10-2018) 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 $30.00 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 certain
retain. However, you must maintain records of tip-outs with
percentage of my total sales as tips. Is this
your other tip income (cash tips, charged tips, split tips, tip
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 $30.00.
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
n An Internal Revenue Service Center may run a match of your in-
and 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
discrepancy and a possible examination of your tax return.
Tips. These forms have spacing for you to log your name, the
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?
on my federal income tax return. Will that There are many good reasons why you want to report all 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,
disability payments, and the right to purchase stock options
employer, how do I pay the remaining
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 To report all tip income has always been the law. The IRS has
report it to his or her employer. The Tip Rate Determination/ put greater emphasis on reporting tip income over the past
Education Program (TRD/EP) was first promoted in the few years because a significant number of taxpayers are not
gaming industry (casino industry) in Las Vegas, Nevada, reporting all their tip earnings as taxable income.
and subsequently 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 compliance GITCA-What is my responsibility, as an
agreement with the IRS concerning tips. employee, under the Gaming Industry Tip
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, as an the IRS if you do participate in the program.
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
10
|
| No text to extract. |
| No text to extract. |