360° Coverage : Taxes From A To Z: T Is For Tip Income

2 Updates
Taxes From A To Z: T Is For Tip Income
Photo Credit: Forbes Business

Taxes From A To Z: T Is For Tip Income

Apr 3 2014, 10:40pm CDT | by

T is for Tip Income. All tips you receive – whether by cash, included on a credit card or as part of a tip-sharing arrangement – are reportable as income and are subject to federal income tax. For...

Filed under: news

 
 
 

21 weeks ago

Taxes From A To Z: T Is For Tip Income

Apr 3 2014, 10:40pm CDT | by

T is for Tip Income.

All tips you receive – whether by cash, included on a credit card or as part of a tip-sharing arrangement – are reportable as income and are subject to federal income tax. For tax purposes, tips also include items which are not as traditional as cash, including tickets or other items of value.

To report your tips, you need to keep good records. One of the best records to keep is a tip diary, or a daily tip record. To keep a tip diary, you can use federal form 4070A, Employee’s Daily Record of Tips (downloads as a pdf). You can also just use a regular old notebook: each workday, write the date and the amount of tips you are paid directly; tips from credit and debit card charges paid out by your employer; the amount you receive as part of a tip splitting agreement; and the value of any noncash tips.

Don’t forget that the IRS now treats service charges or “autocrats” as wages rather than tips. As a result, you would not include service charges in your tip diary.

Keep your tip diary for as long as you keep your tax records (for most taxpayers, that is three years after the date of filing or April 15, whichever is later).

In most cases, you will also want to report cash, check, and debit and credit card tips to your employer. This helps your employer make the proper federal withholding for taxes (as well as state and local, where appropriate); it also means that taxes are properly withheld for Social Security and Medicare purposes. You do not report the value of any noncash tips to your employer since you don’t pay Social Security or Medicare on these tips.

Assuming that your employer doesn’t have an alternate reporting system, use federal form 4070, Employee’s Report of Tips to Employer (downloads as pdf). If you don’t have an alternate reporting system or use form 4070, you can simply give your employer a statement each month with your name, address, and Social Security number; your employer’s name and address; the month you received tips; and your total tips. You must sign and date the statement and give it to your employer by the 10th day of the following month; be sure to keep a copy with your tax records.

If you do not report tips to your employer as required, you may be subject to a pretty substantial penalty in addition to the taxes you owe.

You’ll report all tips (cash and non cash) you receive on your federal income tax return (line 7 of your form 1040 or 1040-A). Any tips that you reported to your employer – as well as service charges reported by your employer – will show up on your form W-2. You’ll report your form W-2 on your own return as well as any overages on your own (those might be subject to Social Security number and Medicare taxes).

In some circumstances, your employer will allocate tips to you. Those will be reported in box 8 of your Form W-2 (not in box 1). No federal income taxes or Social Security and Medicare are withheld on allocated tips.

No matter whether you report or your employer reports, make sure you include all tip income.

And don’t be tempted to cheat: the IRS is pretty savvy. Some restaurants have tip agreements with the IRS where tip income is estimated to be a certain percentage of receipts. In other instances, the IRS relies on formulas based on the type of restaurant, market and day and time of service. Remember, the industry standard for tips is around 15%: reporting less than that percentage in the absence of documentation to back you up can be dangerous (remember that tip journal!).

For more in the series, see:

Want more taxgirl goodness? Pick your poison: receive posts by email, follow me on twitter (@taxgirl), hang out with me on Facebook or check out my YouTube channel. If you want to keep an eye on documents I’ve posted, check out my profile on Scribd. And finally, you can subscribe to my podcast on the site or via iTunes (it’s free).

 
Update
2

2 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,00 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

3 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the d ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Ebola toll in Guinea 460
Conakry, Sep 1 (IANS) At least 690 Ebola virus disease cases have been confirmed in Guinea, out of which 460 people have died, the latest data released by the health ministry here shows.
 
 
Caffeinated 'energy' drinks bad for heart
London, Sep 1 (IANS) "Energy" drinks which are so popular during physical exercise and even otherwise among children and younger adults can cause heart problems, a research shows.
 
 
Nepal too to restructure national plan panel
Kathmandu, Sep 1 (IANS) After the new Indian government decided to scrap the Planning Commission, the Nepal government also has decided to restructure, revamp and modernise its National Planning Commission (NPC), which is styled on the Indian planning panel.
 
 
Women at greater stroke risk from resistant hyper-tension
London, Sep 1 (IANS) The condition known as Resistant Hyper-tension increases stroke risk by 35 percent in women and 20 percent in elderly patients, according to new research.
 
 
 

Latest from the Network

Man with 'disconnected' brain, alive and kicking at 88!
New York, Sep 1 (IANS) This may sound and read unbelievable but there is an elderly man whose brain has no neural fibre connection between his two hemispheres! For a layman, human brain is divided into two hemispheres...
Read more on Apple Balla
 
Ebola toll in Guinea 460
Conakry, Sep 1 (IANS) At least 690 Ebola virus disease cases have been confirmed in Guinea, out of which 460 people have died, the latest data released by the health ministry here shows. A total of 143 patients were...
Read more on Business Balla
 
Southern African Development Community discusses Lesotho coup attempt
Pretoria, Sep 1 (IANS) The Southern African Development Community (SADC) Monday continued its meeting here on the attempted coup by Lesotho's military. Present at the meeting were SADC Chairman and South African...
Read more on Politics Balla
 
Iraqi forces recapture key town
Baghdad, Sep 1 (IANS) Iraqi security forces Monday recaptured the town of Sulaiman Beg in Salahudin province after more than two months of being under siege by the Islamic State (IS) Sunni extremist organisation, an...
Read more on Politics Balla
 
Caffeinated 'energy' drinks bad for heart
London, Sep 1 (IANS) "Energy" drinks which are so popular during physical exercise and even otherwise among children and younger adults can cause heart problems, a research shows. "People sometimes consume a number of...
Read more on Celebrity Balla
 
Nepal too to restructure national plan panel
Kathmandu, Sep 1 (IANS) After the new Indian government decided to scrap the Planning Commission, the Nepal government also has decided to restructure, revamp and modernise its National Planning Commission (NPC), which...
Read more on Business Balla
 
Women at greater stroke risk from resistant hyper-tension
London, Sep 1 (IANS) The condition known as Resistant Hyper-tension increases stroke risk by 35 percent in women and 20 percent in elderly patients, according to new research. "Patients with hyper-tension that does...
Read more on Apple Balla
 
Indian-origin inventor of 'email' slams critics
Washington, Sep 1 (IANS) V.A. Shiva Ayyadurai, an Indian-origin scientist who received official recognition as the inventor of the computer program for electronic mail system or "email" from the US government 32 years...
Read more on Politics Balla
 
Miley Cyrus still loves Liam Hemsworth
Los Angeles, Sep 1 (IANS) Singer Miley Cyrus says she still has strong feelings for her ex-fiance Liam Hemsworth, with whom she parted ways last year. The 21-year-old split from the actor in September 2013 following...
Read more on Celebrity Balla
 
No interference by Russian military in Ukraine crisis: Minister
Moscow, Sep 1 (IANS) Russian Foreign Minister Sergei Lavrov Monday said Moscow will not send out military troops to...
Read more on Politics Balla