Tuesday Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or do you drive a taxicab? The tip income you receive as an employee from those services is taxable income.
Here are some tips about tips:
Tips are taxable. Tips are subject to federal income and Social Security and Medicare taxes, as well as State and City income tax. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
Keep a running daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, let us know.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.