Generally, income received from any source, including tips, is taxable. Here's some information to help report tip income.
All tips that are received are income and subject to federal income tax. All tips received must be reported in 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 to correctly report tip income.
Keep a daily tip record.
Report tips to employer.
Report all tips on income tax return.
If an employee receives $20 or more in any month, they must report their tips for that month to their employer by the 10th day of the next month. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.
Use the Interactive Tax Assistant You can use the Interactive Tax Assistant on IRS.gov to find out if tip income is taxable. This tool provides answers to tax law questions.
Resources:
Is My Tip Income Taxable?
Form 4137, Social Security and Medicare Tax on Unreported Tip Income
Publication 1244, Employee's Daily Record of Tips and Report to Employer
Tip Recordkeeping and Reporting
Publication 531, Reporting Tip Income