Tax Tips About Tips

Getting some good tips lately? No, not those handy under-the-table bits of information, but the on-the-job money kind. If you do, it would be beneficial to remember a few tips about how to deal with your extra income.

One Word: Taxable

First and foremost, you must pay federal income tax on any tips you receive. The value of non-cash tips – such as tickets, passes, or other items of value – are also subject to income tax.

Second, make sure you include all tips on your income tax return. The IRS says you must include the total of all tips you received during the year on your return. That would include tips directly from customers, tips added to credit cards, and your share of tips received under a tip-slitting agreement with other employees.

And don’t forget to report your tips to your employer. If you get $20 or more in tips during any one month, from any one job, you must report your tips for that month to your employer. This would include cash, check, and debit and credit card tips. Non-cash tips – those tickets we talked about earlier – do not have to be reported to employers.

Employers in turn are required to withhold federal income, Social Security, and Medicare taxes from your reported tips.

It would be a very good idea to keep a daily record of your tips. You can kill two birds with one stone, as they say, by using Publication 1244, the Employee’s Daily Record of Tips and Report to Employer take care of both tasks at one time. If you’d like a little more information – and more tips, of course – on tips, check out Publication 531, Reporting Tip Income.

Staying on the right side of the IRS could be the best tip of all.