Are My Tips Taxable?
Posted by William Byrnes on February 23, 2015
• Show all tips on the 1040 tax return. All tips received during a calendar year must be added up and included on the federal tax return. This even includes the value of tips that are not in cash. Examples of non-cash tips include items such as tickets, passes or other items when provided by a customer for work or service.
• All tips are taxable. Tips paid directly by a customer and tips added by a customer to a credit card are both to be included in taxable income. As well, tips received under a tip-splitting agreement with other employees, such as in a restaurant, are to be included.
• Report tips to the employer. If an employee receives $20 or more in tips in any one month, the employee must report the tips for that month to the employer. Tips reported to the employer include cash, check and credit card tips but does not include the value of any noncash tips. The employer must withhold federal income, Social Security and Medicare taxes on these reported tips.
• Daily tip log. Use the IRS’ Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tips.
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