Tax Insights

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Reporting tips and taxation

Do you work at a hair salon, barber shop, casino, golf course, hotel, restaurant or drive for Uber or Lyft? The IRS says tip income you receive as an employee from those services is taxable income.

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Taxable income from these type of tips are subject to federal income, Social Security and Medicare taxes and may be subject to state income tax as well.

You must keep a running daily log of all your tip income and tips paid out. There are several apps that can assist with this such as Tip$ee, Just the Tips, and Tip Counter. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, the value of any non-cash tips such as tickets or passes that you receive, and the amount of tips you paid out to other employees through tip pools or tip splitting and the name of the employees.

You can reference IRS Publication 1244, Employee’s Daily Record of Tips and Report of Tips to Employer, for further information or to address specific questions.

If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire, if you become disabled, or your family’s benefits if you die).

If you have further questions or want to discuss the proper reporting of your tips contact our office to ensure your wages are properly reported.

Danette J. Holguin, EA