Quick reference guide to help you report tip earnings to your employer.
Why should you report?
The law requires you to report tip income to your employer.
Tips reported to you (together with other pay) are used to determine the amount of Social Security benefits you and your family may receive if you retire, become disabled, or die.
Your reported tips will be considered in determining your eligibility for Medicare benefits at age 65, or if you become disabled.
Tipped employees of large food and beverage establishments who under-report may find they are subject to tip allocations on which they may owe additional taxes, anyway.
If the IRS discovers you have under-reported your tip earnings, you may be subject to a penalty equal to 50% of your Social Security and Medicare tax on the un-reported tips, in addition to the unpaid tax you owe.
Who must report tips?
Most commonly, it is employees of food and beverage operations who receive tips. But, reporting is required from any workers who receive tips, such as: hair dressers, cab drivers and casino dealers.
What payments are tips?
A tip is a voluntary payment from a customer. The tip amount must not be dictated by the employer policy, nor be subject to negotiation with the employer; the amount must be decided solely by the customer.
Tip payments may be made in cash, by check or charged (on the customer's credit card or to the "house account", to be collected by the employer and paid over to you later as cash)
If a customer gives you a non-cash tip (such as passes, tickets, goods or services) the value of that non-cash tip is not reportable to your employer, but it is taxable on your income tax return.
Some payments to employees appear to be tips, but really are wages. THREE EXAMPLES OF NON-TIP PAYMENTS:
Hotel banquet manager negotiates a service charge with customer and distributes the proceeds to employees.
A club bills members for all services rendered and includes a mandatory gratuity for employees, then distributes the proceeds to employees.
Employer requires the employees to turn over all tips to employer, and distributes the proceeds among all employees.
If you are involved in tip pooling or tip splitting with other employees, report only the amount of tips you actually receive and keep. For example, if you receive $400 in tips a month and give another employee (like a busboy) one-fourth, you report $300 in tips and the other employee should report $100.
No tip report is required if you receive less than $20 in "cash" tips during a calendar month.
How to report your tips
You may use IRS Form 4070 to report tips to your employer.
Otherwise, here is the information required; provide it in any format, but put it in writing:
The amount of tips
Your employer's name and address
Your name and address
Your Social Security Number
The month (or shorter time) covered
The date of the report
When to report your tips
Your employer may require you to report your tips more frequently than monthly. However, as long as you submit your report by the 10th of the month following any month in which tips are at least $20, you have satisfied the law.
If the 10th day falls on a Saturday, Sunday or legal holiday, you may report on the next business day.