Tip Income Reporting Policy

What happens if I don't report my tip income to my employer?

If you do not report tips of $20 or more to your employer as required, you may be subject to a penalty.

What tip income do I need to report to my employer?

In any one month and for any one job that you receive tip income of more than $20 in any forms such as below, you must report to your employer:

• cash
• check
• credit card tips

The employer will include tips you report in the amount shown in box 1 of the form W-2. Cash, check and charge tips of $20 or more for any one month from any one job are subject to social security and Medicare tax. Your employer withholds social security and Medicare tax for these tips from your wages. So, the more tip income you report to your employer, the more tax withholding you will have and the smaller your paycheck.

What tips don't I need to report to my employer?

You do not report to your employer the value of noncash tips you receive.

What are allocated tips?

Allocated tips are assigned by an employer and shown in the box 8 of Form W-2. The IRS requires certain food and drink establishments to allocate tips to employees whose reported tips are less than their share of a required percentage of total food and drink sales.

Unless you can prove you received a smaller amount of tips than the amount shown in box 8 of W-2 form, you must add that amount to the amount in box 1 and enter the total on line 7 of form 1040. A daily tip record is used to prove the amount of tips actually received. If allocated tips are reported on line 7, Form 4137 must be completed to figure out the social security and Medicare taxes owed on these tips.