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Feature Articles: Taxes

Tips and Taxes

Reviewed and used with special permission from the IRS by: Brenda Procter, M.S., and Debby Whiston, M.S., Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri Extension

Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income, according to the IRS.

As taxable income, these tips are subject to federal income, Social Security and Medicare taxes. They may be subject to state income tax as well.

You must keep a running daily log of all your tip income and tips paid out. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, the value of any non-cash tips such as tickets or passes that you receive, and the amount of tips you paid out to other employees through tip pools or tip splitting and the names of those employees.

You can use IRS Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).

If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or become disabled, or your family's benefits if you die).

For more information, check out IRS Publication 531, Reporting Tip Income or Publication 3148, Tips on Tips. They are available for downloading at or by calling toll-free 1-800-829-3676. For recorded tax information on tips, call the toll-free TeleTax number, 1-800-829-4477, and select topic 402.





Source: Tax Tip 2005-33




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Last update: Tuesday, May 05, 2009