Be Sure to Report Income From Tips on Your Tax Return

Information provided by IRS.gov

Income received from any source, including tips, is taxable. Use the following guidelines to help report tip income.

All tips that taxpayers receive are income and subject to federal income tax. Taxpayers must include all tips they receive in their gross income. This includes:

Tips directly from customers.
Tips added using credit cards.
Tips from a tip-splitting arrangement with other employees.

The value of non-cash tips, such as tickets, passes or other items of value is also income and subject to tax.

To ensure you are reporting tip income correctly, be sure to:

Keep a daily tip record.
Report tips to their employer.
Report all tips on their income tax return.

If an employee receives $20 or more in any month, they must report their tips for that month to their employer by the 10th day of the next month. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.

About the Author: Denis Burns

Denis Burns is a New Mexico native. Prior to establishing The Burns Firm, Mr. Burns worked exclusively in the Federal Income Tax division of a “Big Four” accounting firm. His experience includes tax planning and compliance for corporations, individuals, trusts, estates and partnerships in a wide variety of industries.