The short answer is yes, tips are taxable. If you work at a hair salon, barbershop, casino, golf course, hotel, or restaurant, or drive a taxicab, then the tip income you receive as an employee from those services is taxable income. Here are a few other tips about tips:
Taxable income. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. 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 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, please call.
Tips can be tricky. Don't hesitate to contact the office if you have questions.
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Mr. Maker is a certified Public Accountant and serving the South Asian community since 1993.
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Website: https://www.taxmaker.com/newsletter.php#10
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