With tax filing season in full swing, it’s a good time to review whether you’re reporting the correct amount of income on your tax return.
If you or a family member worked at a job during 2013 where tips were received from customers, those tips need to be reported as income on the recipient’s tax return. You must pay federal income tax on any cash tips you receive during the year.
Reportable tips include tips received directly from customers, tips added to credit or debit cards and your share of tips received under a tip-splitting agreement with other employees. If you receive $20 or more in tips in any one month, from any one job, you are required to report your tips for that month to your employer.
The report should include only cash, checks, and debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips.
The value of noncash tips, such as tickets, passes or other items of value, is also subject to income tax. Do not report the value of any noncash tips to your employer.
Any tips reported to your employer should be included in your wages on form W-2, Wage and Tax Statement. Do not double-count these tips by including them separately on your tax return. The only tips that should be separately reported on your return are those that you did not report to your employer.