How Tipped Workers Report Income to the IRS

What counts as reportable income

Cash tips, card tips, and tips from tip pools are all taxable. Non-cash tips like tickets or passes count too, at fair market value. Service charges your employer adds to bills are wages, not tips. Report all of it, not just what your employer already sees.

The $20 monthly rule

Give your employer a written report when tips total $20 or more in a month. The IRS offers Form 4070 for this, though any written statement works. The report is due by the 10th of the following month. Your employer uses it to withhold income, Social Security, and Medicare taxes.

Daily records and Form 4137

Keep a daily log of tips with the date, amount, and where you worked. The IRS offers Form 4070A as a ready-made daily record. If you never reported tips to your employer, file Form 4137 with your return. That form figures the Social Security and Medicare taxes you owe on unreported tips.

Your records checklist

1. Log every tip daily with the date and amount.
2. Report monthly totals of $20 or more to your employer.
3. Check your W-2 for allocated tips you never reported.
4. File Form 4137 for any unreported tips.

Common questions

Are cash tips really taxable?

Yes. The IRS taxes all tips, cash or not. Cash tips are income under the law, even when no one else sees them.

What are allocated tips on my W-2?

Large food and beverage employers must allocate tips when reported tips look too low. The IRS uses 8% of gross receipts as the floor for the formula. Allocated tips appear in Box 8 of your W-2.

Sources and current instructions

Check the tax year and any later updates before acting. These are the primary sources used for this guide.

• IRS Publication 531: Reporting Tip Income
• IRS: Tax Topics