Here’s how taxpayers should report tip income

 

IRS Tax Tip 2020-37, March 17, 2020

Generally, income received from any source, including tips, is taxable. Here's some information to help taxpayers report tip income correctly.

All tips that taxpayers receive are income and subject to federal income tax. Taxpayers must include all tips they receive in their gross income. This includes:

  • Tips directly from customers.
  • Tips added using credit cards.
  • Tips from a tip-splitting arrangement with other employees.

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

Three things can help taxpayers report their tip income correctly.

  • Keep a daily tip record.
  • Report tips to their employer.
  • Report all tips on their income tax return.

Use the Interactive Tax Assistant

This online tool provides taxpayers answers to many tax law questions. People can use the Interactive Tax Assistant to find out if their tip income is taxable.

If an employee receives $20 or more in tips in any month, they must report the total amount of their tips for that month to their employer by the 10 day of the next month. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.

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