Tip Earnings – Reporting Tip Income On Your Taxes

If you happen to work in a service where you get tips, guess what? The IRS expects you to report tips and pay taxes on them.

Your Tip Earnings and Taxes 

The internal revenue service takes a very simple approach to tips.  It sees all tips you make in your job as taxable income that must be reported and for which taxes should be paid.  Put another way, the IRS has a simple but cruel view about taxes. 

Tips can come in different forms.  Some tips are received directly from customers while others are automatically added to the customer's bill.  The IRS takes the position you must report and pay taxes on both amounts.  This also takes into account taxes you earn through any group splitting where all tips are collected together and then split amongst the employees.  In addition to this, the IRS also takes the view that any non-cash tips like tickets to something are also considered income that must be reported and taxes paid on.  In other words, the internal revenue service will get you coming and going. 

To make things even more brutal, the internal revenue service has certain steps it wants you to take when reporting tips.  If your tips are an amount of twenty dollars or more in any calendar month from a single job, you are required to report the total amount of tips to the employer by the 10th day of the following month.  After you report your tips to the employer, then the employer is supposed to withhold federal income tax, social security and Medicare taxes from your paycheck.  Bear in mind that the failure to do so may result in the placement of a 50 percent penalty on your taxes.  Clearly, the IRS takes it quite seriously when it comes to getting its money. 

Tips paid to waitresses, bartenders, barbacks and so on are a hot spot with the IRS and always have.  For the reason that tips tend to be given in cash form, there is a particularly high possibility of forgetting to report them.  It appears that the IRS thinks so and has shown a generally aggressive attitude towards this topic.  If you specify that you are a waiter, bartender or anything similar on your tax return and you fail to report any tip income, there could be a good chance you may be audited.  So to avoid any problems, make sure you report all tips.