Publication 15
taxmap/pubs/p15-005.htm#en_us_publink1000202343Tips your employee receives from customers are generally subject to withholding. Your employee must report cash tips to you by the 10th of the month after the month the tips are received. The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Both directly and indirectly tipped employees must report tips to you. No report is required for months when tips are less than $20. Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. The statement must be signed by the employee and must include:
- The employee's name, address, and SSN,
- Your name and address,
- The month or period the report covers, and
- The total of tips received during the month or period.
Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to
Employer.
| You are permitted to establish a system for electronic tip reporting by employees. See Regulations section
31.6053-1(d). |
taxmap/pubs/p15-005.htm#en_us_publink1000202345You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA
tax.
You can collect these taxes from the employee's wages or from other funds he or she makes available. See
Tips treated as supplemental wages
in section 7 for more information. Stop collecting the employee social security
tax when his or her wages and tips for tax year 2013 reach $113,700; collect the
income and employee Medicare taxes for the whole year on all wages and tips. You
are responsible for the employer social security tax on wages and tips until the
wages (including tips) reach the limit. You are responsible for the employer
Medicare tax for the whole year on all wages and tips. File Form 941 or Form 944
to report withholding and employment taxes on tips.
taxmap/pubs/p15-005.htm#en_us_publink1000202347If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. If there are not enough funds available, withhold taxes in the following order.
- Withhold on regular wages and other compensation.
- Withhold social security and Medicare taxes on tips.
- Withhold income tax on tips.
taxmap/pubs/p15-005.htm#en_us_publink1000202348Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b and 4c). Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Enter the amount of uncollected social security and Medicare taxes in box 12 of Form W-2 with codes "A" and "B." See
section 13 and the General Instructions for Forms W-2 and W-3.
Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. See Revenue Ruling 2012-18, 2012-26 I.R.B. 1032, available at
www.irs.gov/irb/2012-26_IRB/ar07.html.
taxmap/pubs/p15-005.htm#en_us_publink1000202350If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. However, do not withhold income, social security, or Medicare taxes on allocated
tips.
A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding
year.
The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. For information on filing Form 8027 electronically with the IRS, see Publication
1239.
taxmap/pubs/p15-005.htm#en_us_publink1000202351Employers may participate in the Tip Rate Determination and Education Program. The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. To get more information about TRDA and TRAC agreements, see Publication
3144, Tips on Tips. Additionally, visit IRS.gov and enter "MSU tips" in the search box to get more information about GITCA, TRDA, or TRAC
agreements.