Tip Income
Tips paid in cash, a cash equivalent, or a non-cash transaction
are taxable income and are treated as wages subject to FICA, FUTA,
and income tax.
Reporting Tips
You should report tips to your employer on Form 4070, or by
another method defined by your employer. All tips should be
reported to your employer so your employer can report the correct
amount of wages to the Social Security Administration.
Tips reported to your employer are reported in box 1 of Form W-2
and are subject to income tax withholding.
Tips should be reported monthly by the 10th day of the next
month. For example, you must report tips received in May to your
employer by June 10. If the due date falls on a Saturday, Sunday or
legal holiday, the due date is extended to the next business
day.
If you do not report tips to your employer, you may be subject
to a penalty equal to 50 percent of the Social Security and
Medicare taxes that you owe on the unreported tips. The unreported
tips must be reported on Form 4137 of your tax return.
Allocated Tips
Allocated tips are tips assigned to you by your employer. These
tips are in addition to the tips that you report to your employer.
Your employer can allocated tips only if all the following are
true:
- You worked in a restaurant, cocktail lounge, or similar
business that must allocate tips to employees.
- The tips you reported to your employer were less than your
share of 8 percent of food and drink sales.
- You did not participate in your employer's Attributed Tip
Income Program.
Allocated tips are reported in box 8 of Form W-2 and are not
subject to social security and Medicare tax withholding. You must
fill out Form 4137, reporting the amount from box 8 on line 1.
For more information, see IRS Publication 531.