Do I Have to Claim Tips on My Tax Return?

A waitress earning a tip at work

The information in this article is up to date through tax year 2019 (taxes filed in 2020).

As a server, bartender, or waitress, you probably earn most of your income from tips. People can leave tips in many ways, including cash. It may be tempting to leave this amount out when you’re calculating your gross income. But the fact is, the IRS wants to know all your income – including tips. 

Do I have to report my tips? 

Yes. The IRS assumes that if you work in a restaurant or similar industry, you will earn tips at an average of 8%. If you regularly report tips under this amount or don’t report any tips, the IRS may investigate.   

What should be included as tip income for my taxes? 

Tips are usually paid through credit/debit card or with cash.  

However, there are other ways to receive a gratuity. Sometimes people who know you well might leave other perks as a tip. These can include: 

  • Tickets to a game or event  
  • Vouchers or coupons 
  • Other noncash items 

 You do not have to report these as income to your boss, but you are still responsible for reporting the fair market value to the IRS. 

If your restaurant includes service charges for large parties, you are not required to report it to your employer because it is already accounted for and should be included in your wages. But, if the customer leaves you an additional tip on top of the service charge, you will need to report that 

What about shared or pooled tips? 

If you receive a pooled tip or share your tips with your team, you are only responsible for reporting what you actually bring home. For example, let’s say you make $150 for one table but give $40 to the bartender and $20 to the busser. In that case, you will only report the $90 you took home.  

Should I report my tips to my boss or straight to the IRS? 

If you make more than $20 in tips per month, report them directly to your employer. This will allow your boss to keep track of expenses and sales, and also help them to correct your tax withholdings. 

If you make less than $20 in tips per month, it will not impact your tax bill the same way. You can report these directly to the IRS. 

How do I report tips to my employer? 

You can use Form 4070A to keep a record of your tips as you earn them. Then, use Form 4070 to report them to your employer by the 10th day of the following month. So, to report tips you earned in January, turn your Form 4070 in by February 10th.  

How do I report tips to the IRS? 

If you make less than $20 in tips in a month, report them directly to the IRS using Form 4137.  

If you earn tips from more than one job, you’ll need to treat each one separately. That is, you won’t add up your tips from different jobs. You will report your gratuity for each job individually.  

All tips should be included in your taxable income, regardless of who you report them to. 

Are taxes withheld from my tip income? 

If you are earning more than $20 per month in tips, your employer should withhold tax for Social Security and Medicare. This is why it is so important for you to report gratuity to your employer. They can withhold the right amount of tax during the year, so you won’t get hit with a surprise tax bill when you file. 

What is the penalty for not reporting tips?  

If you fail to report your tips, the IRS can fine you as much as 50% of the tax (Medicare and Social Security) you were supposed to pay on that amount. 

Reporting your tips can be hard to remember. Reporting your tips while filing with TaxSlayer is a breeze. Get started for free today.

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