"Tips" for Tip Income

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If you have a job such as a waiter, taxi driver, hotel concierge, hairdresser, or delivery person where you receive tips in addition to your regular income, these tips are subject to federal income tax and need to be included in your income. Tips are voluntary and can be in the form of cash, debit or credit card, or even non-cash gifts such as concert or sporting event tickets.

Reporting tip income is simple, as long as you remember to:

  1. Record tips daily. Documenting your tips is important for reporting your tips, both to your employer and on your income tax return. Plus, the IRS could request this information in the unlikely event of an audit.

    One way to keep track of your daily tip income is to use Form 4070A from IRS Publication 1244. Ask your employer for the form or go to http://www.irs.gov/pub/irs-pdf/p1244.pdf. This form makes it easy to keep track of your cash tips, credit/debit card tips, noncash tips, and tips split with coworkers. Other recordkeeping options are to use a monthly calendar, create an Excel spreadsheet or download a mobile app. If you decide to track your tips with an app, remember to keep a paper copy of the information as well.

  2. Report tips to your employer. Keeping a daily record of tip income makes it easy to know if you need to report tips to your employer. If your cash tip income totals $20 or more at the end of each month, you must report those tips to your employer. Your employer is then required to withhold federal income, Social Security, and Medicare taxes from this tip income. Not reporting your tip income to your employer may result in you paying a penalty.

    Some employers may require you to report tips at the end of each work shift and then add them to your Form W-2; however, many employers trust employees to track tips on their own and report them when time comes.

  3. Report tips on your tax return. All tip income you receive throughout the year must be reported on your individual income tax return. This includes your cash tips, credit/debit card tips, noncash tips, and any tips received under a tip-splitting agreement with coworkers.

    Tips you reported to your employer will be included in box 1 of Form W-2 you receive from your employer. Your tips are reported on line 7 of your Form 1040.

    If you did not report all your tips to your employer, you must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income, with your Form 1040 tax return. Tip income is reported on Form W-2 but you can also access the Q&A for Form 4137 in TaxAct by going to the Federal Quick Q&A, expanding the Other Income category, and selecting Taxes on tip income.

    Don't waste all that hard work, friendliness, and loyalty it took to earn those tips by failing to report them properly. Your boss (and the IRS) will surely appreciate it.

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Upcoming Tax Dates

January 1 — Everyone
Federal Holiday (New Year's Day) Details

January 10 — Employees who work for tips
If you received $20 or more in tips during December, report them to your employer Details

January 15 — Individuals
Make a payment of your estimated tax for 2018 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES Details

January 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in December 2018

January 15 — Farmers & fishermen
Pay your estimated tax for 2018 using Form 1040-ES Details

January 21 — Everyone
Federal Holiday (Martin Luther King, Jr. Day) Details

January 31 — All Employers
Give your employees their copies of Form W2 for 2018. If an employee agreed to receive Form W2 electronically, have it posted on a website and notify the employee of the posting.

January 31 — Individuals who must make estimated tax payments
If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2017 by January 31. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 15.

January 31 — Payers of gambling winnings
If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W2G.

January 31 — Social Security, Medicare, and withheld income tax
File Form 941 for the fourth quarter of 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until 02-10 to file the return.

January 31 — Certain small employers
File Form 944 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2018 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

January 31 — Farm employers
File Form 943 to report social security and Medicare taxes and withheld income tax for 2018. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

January 31 — Federal unemployment tax
File Form 940 for 2018. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

January 31 — All businesses
Give annual information statements to recipients of certain payments you made during 2018 Details

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