The tips you receive while working on your job are considered part
of your pay. You must include your tips on your tax return on the same
line as your regular pay. However, tax is not withheld directly from
tip income, as it is from your regular pay. Nevertheless, your
employer will take into account the tips you report when figuring how
much to withhold from your regular pay.
Reporting tips to your employer.
If you receive tips of $20 or more in a month while working for any
one employer, you must report to your employer the total amount of
tips you receive on the job during the month. The report is due by the
10th day of the following month.
If you have more than one job, make a separate report to each
employer. Report only the tips you received while working for that
employer, and only if they total $20 or more for the month.
How employer figures amount to withhold.
The tips you report to your employer are counted as part of your
income for the month you report them. Your employer can figure your
withholding in either of two ways.
- By withholding at the regular rate on the sum of your pay
plus your reported tips.
- By withholding at the regular rate on your pay plus an
amount equal to 28% of your reported tips.
Not enough pay to cover taxes.
If your regular pay is too low for your employer to withhold all
the tax (including social security tax, Medicare tax, or railroad
retirement tax) due on your pay plus your tips, you can give your
employer money to cover the shortage.
If you do not give your employer money to cover the shortage, your
employer will first withhold as much social security tax, Medicare
tax, or railroad retirement tax as possible, up to the proper amount,
and then withhold income tax up to the full amount of your pay. If not
enough tax is withheld, you may have to make estimated tax payments.
When you file your return, you also may have to pay any social
security tax, Medicare tax, or railroad retirement tax your employer
could not withhold.
Tips not reported to your employer.
On your tax return, you must report all the tips you
receive during the year, even tips you do not report to your employer.
Make sure you are having enough tax withheld, or are paying estimated
tax, to cover all your tip income.
Allocated tips.
If you work in a large establishment that serves food or beverages
to customers, your employer may have to report an allocated amount of
tips on your Form W-2.
Your employer should not withhold income tax, social security tax,
Medicare tax, or railroad retirement tax on the allocated amount.
Withholding is based only on your pay plus your reported tips.
Your employer should refund to you any incorrectly withheld tax.
More information.
For more information on the withholding rules for tip income and on
tip allocation, get Publication 531,
Reporting Tip Income.
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