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Tips

Question: My Form W-2 shows allocated tips in box 8. I tip-out 15% of all my tips to the busser and 5% to the bartender. Do I deduct the tipped-out amounts from the amount in box 8 when I report it on my income tax return?

Answer:

No.  You cannot deduct tip-outs (the tips you split with other employees) from allocated tips when you report it on your income tax return.

If your employer allocated tips to you, they are shown in box 8 of your Form W-2 (PDF).  They are not included in box 1 with your wages and reported tips.

Allocated tips are amounts your employer assigned to you in addition to the tips you reported.  Your employer is required to allocate tips only if:

  • You worked in a large food or beverage establishment (restaurant, cocktail lounge, or similar business),
  • You received any tips directly from customers, and
  • The tips you reported to your employer were less than your share of 8% (or if your employer requested a lower rate, the rate approved by the IRS) of food and drink sales.  

Generally, you must report the full amount contained in box 8 of your Form W-2. However, you are not required to report the allocated tip amount if you can prove the amount of tips you actually received with adequate records was less than the allocated amount.  If you do not have records or have inadequate records, you must report the amount in box 8 as income on your tax return.

Additional Information:


Category: Interest, Dividends, Other Types of Income
Subcategory: Tips

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Avenue NW
Washington, DC 20224