Publication 17
taxmap/pub17/p17-027.htm#en_us_publink1000171358taxmap/pub17/p17-027.htm#en_us_publink1000271755This chapter is for employees who receive tips.
All tips you receive are income and are subject to federal income tax. You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement.
The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax.
Reporting your tip income correctly is not difficult. You must do three things.
- Keep a daily tip record.
- Report tips to your employer.
- Report all your tips on your income tax return.
This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. This chapter will also show you how to treat allocated
tips.
For information on special tip programs and agreements, see Publication
531.
taxmap/pub17/p17-027.htm#TXMP4da21d3dUseful items
You may want to see:
Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137:
Social Security and Medicare Tax on Unreported Tip Income 4070:
Employee's Report of Tips to Employer taxmap/pub17/p17-027.htm#en_us_publink1000171359taxmap/pub17/p17-027.htm#en_us_publink1000171360You must keep a daily tip record so you can:
- Report your tips accurately to your employer,
- Report your tips accurately on your tax return, and
- Prove your tip income if your return is ever questioned.
taxmap/pub17/p17-027.htm#en_us_publink1000171361There are two ways to keep a daily tip record. You can either:
- Write information about your tips in a tip diary, or
- Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge
slips.
You should keep your daily tip record with your tax or other personal records. You must keep your records for as long as they are important for administration of the federal tax law. For information on how long to keep records, see
How long to keep records in chapter 1.
If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of
Tips. To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer
for Publication 1244. Also, Publication 1244 is available online at
www.irs.gov/pub/irs-pdf/p1244.pdf. Publication 1244 includes a 1-year supply of Form 4070A. Each day, write in the information asked for on the form.
In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. Although you do not report these tips to your employer, you must report them on your tax
return.
If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). Then, each workday, write the date and the following information.
- Cash tips you get directly from customers or from other employees.
- Tips from credit and debit card charge customers that your employer pays
you.
- The value of any noncash tips you get, such as tickets, passes, or other items of
value.
- The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the
tips.
taxmap/pub17/p17-027.htm#en_us_publink1000171363You can use an electronic system provided by your employer to record your daily tips. If you do, you must receive and keep a paper copy of this record.
taxmap/pub17/p17-027.htm#en_us_publink1000248186Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. This is part of your wages, not a tip. See examples
below.
taxmap/pub17/p17-027.htm#en_us_publink1000248187Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. Because Jane did not have an unrestricted right to determine the amount on the "tip line," the 18% charge is considered a service charge. Do not include the 18% charge in your tip diary. Service charges that are paid to you are considered wages, not
tips.
taxmap/pub17/p17-027.htm#en_us_publink1000248188Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. David’s bill includes a blank "tip line," with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. Because David is free to enter any amount on the "tip line" or leave it blank, any amount he includes is considered a tip. Be sure to include this amount in your tip
diary.