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
http://irs.gov 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.
Links:
- Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer (PDF 38K)
- Publication 531, Reporting Tip Income (PDF 93K)
- Publication 3148, Tips on Tips for Employees (PDF 629K)
- Tax Topic 402, Tips
Source: Tax Tip 2005-33
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Last update: Tuesday, May 05, 2009
