What Is Tip Income and How Is It Taxed?

Usually in sectors like food service, hotels, salons, and deliveries, tip income comprises any money earned from consumers for services rendered. Tips might be non-monetary presents or tickets, credit card payments, or cash payments. Should you get $20 or more in tips in a month from one company, you must notify your employer by the 10th day of the next month.

Your tax return must include all tips—reported or not—as taxable earnings. All tip revenue implies you have to pay Medicare tax, Social Security tax, and federal income tax.

Your Form W-2 (Box 1) will show your reported tips and your employer will also withhold relevant taxes. Should you fail to notify your employer of all your tips, you will have to file your taxes using Form 4137 to compute the extra Social Security and Medicare tax you owe on the unreported sum.

Either with IRS Form 4070A or another trustworthy approach, maintaining a daily journal of your tips is strongly suggested. This guarantees correct reporting and safeguards you in the event of an examination.

This entry was posted on Sunday, April 6th, 2025 at 3:56 pm and is filed under Income. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.