Reporting Your Tips

Reporting Your Tips

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It’s no surprise that tip income from jobs is taxable. We all know that workers such as waiters and waitresses and valets and casino dealers and hotel room cleaners pay taxes on their tip income. But what might surprise us is the details that the IRS has in its rules about tips.

Here are some of those surprising details.

First of all, the IRS says all tips that workers receive must be reported in their gross income. This includes:

Tips directly from customers.
Tips added using credit, debit, or gift cards.
Tips from a tip-splitting arrangement with other employees.
In case you don’t know, when you tip a cocktail waitress that waitress may have to split the tip with a bartender.

The waiter or waitress serving your food may be sharing the tip with a busboy or cleaner or kitchen workers.

When you tip your hairstylist the stylist might be sharing the tip with others in the hair salon.

And when you tip a casino dealer, that dealer may have to split that tip with other dealers and with other casino employees including chip runners and other employees who normally aren’t tipped.

Car valets may share their tips with other valets.

The IRS says even non-cash tips are taxable.
The value of non-cash tips, such as tickets, passes or other items of value is also income and subject to tax.

The IRS says if you get tips on your job there are three things to follow to correctly report tip income.

Keep a daily tip record.
Report tips to the employer.
Report all tips on their income tax return.
The IRS also has rules for employers.

The IRS says if an employee receives $20 or more in any month, the employee 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.

So think about that the next time you tip. Not only is the tip taxed but the employee might be sharing that tip with others.

Remember, the tax attorney at Legal Tax Defense offers a free consultation on tax issues and unfortunately, workers who receive tips can be targeted for tax audits. Call now for your free consultation. And go to for more helpful information.

Disclaimer: Alan Mendelson is a well-known TV consumer news reporter who reports on tax issues. You should seek professional advice if you have tax questions or issues. 


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