Tips are taxable income

SOUTHERN CALIFORNIA – If a person’s pay from their job includes tips, the IRS has a few important reminders about tip income: Tips are taxable.

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

A person needs to include all tips they have received during the year on their tax return. This includes tips received directly from customers, tips added to credit cards, and one’s share of tips received under a tip-splitting agreement with other employees.

Report tips to the employer. If a person receives $20 or more in cash tips in any one month, they must report their tips for that month to their employer. The employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. A daily log should be kept regarding tips.

For more information, see IRS Publication 1244 or Publication 531, Reporting Tip Income. Both are available at http://www.IRS.gov.