With the Covid induced tax filing deadline fast approaching on July 15th, the IRS would like to remind taxpayers that, generally, income received from any source, including tips, is taxable. Here’s some information to help taxpayers 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.
Three things can help taxpayers to correctly report their tip income.
• Keep a daily tip record.
• Report tips to their employer.
• Report all tips on their income tax return.
Use the Interactive Tax Assistant
This online tool provides answers to tax law questions. Taxpayers can use the Interactive Tax Assistant on IRS.gov to find out if their tip income is taxable.
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.
The tax filing deadline has been postponed to Wednesday, July 15, 2020. The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mailed a tax return will experience a longer wait. There is no need to mail a second tax return or call the IRS.
Is My Tip Income Taxable?
Form 4137, Social Security and Medicare Tax on Unreported Tip Income
Publication 1244, Employee’s Daily Record of Tips and Report to Employer
Tip Recordkeeping & Reporting
Publication 531, Reporting Tip Income
Tax Tip 2020-82