How to Report Tip Income
Food servers, bellhops, busboys, busgirls and bartenders frequently receive tips from their customers. As a part of following Internal Revenue Service (IRS) requirements, any person who receives over $20.00 in tips in any given month is required to report those tips as income. Reporting accurate tip income may help you "beef up" your financial standing so that you will have an easier time of acquiring a loan. It also can provide you with higher levels of Social Security, Medicare, worker's compensation and employee pension benefits. Excellent record-keeping habits will provide you with the most accurate information.
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Instructions
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Download and print Publication 1244 from the IRS via the link in "Resources," or ask your employer for IRS Form 4070A: Employee's Daily Record of Tips. Fill in your name and address, your employer's name and the month and year of tip reporting. Include the date on which you earned the tips and the specific amounts you received from cash and credit or debit cards. Enter the amount of tips received that you paid to other employees--for example, if you are a waitress and you paid some of your tip money to a busboy.
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Report monthly tips to your employer by the date requested. Your employer may require you to fill out IRS Form 4070: Employer's Report of Tips to Employer, which you can find in the "Resources" link. Fill out your name, address and Social Security number and your employer's name. Write down the dates of the period in which you received the tips you are reporting. Include the total amount of tips received for the given period minus the tips you paid out to others.
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Report the amount of annual tip money you earned on your next income tax return. You don't want to be penalized by the IRS for not reporting the correct amount of money that you earned in tips.
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Tips & Warnings
If you don't have access to the IRS forms, you can keep a tips diary of your own. You will need to include your name, your employer's name and an itemized list of the following information: (1) Cash tips (2) Credit card tips that are paid to you in cash by your employer (3) Value of any non-cash tips you receive such as tickets or merchandise (4) Tips you receive from a tip-pool (when employees share tips).
If your employer doesn't use IRS Form 4070 as a reporting form for tips, you can make your own with the following data: (1) Your name and Social Security number (2) Your employer's name and address (3) The month for which you are reporting tip income (4) The amount of tip income you received in the specific month.
Your employer may have you report your tip income more often than once per month, but a tip reporting record cannot include periods of more than one month.
Obtain assistance from a tax professional if you are unsure of how to fill out your income tax form when reporting tips.
Keeping accurate records of your tip income is essential to avoid being penalized by the IRS for underpayment of taxes.
References
Resources
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