Optional payments determined by a customer and given to an employee for providing a service is tip income. Tips are subject to Federal, Social security and Medicare taxes. Taxable Tips include cash tips, non-cash tips, tips added to credit cards and shared tips.
Cash tips are directly from a customer. This also includes tips charged by credit card, debit card, gift card or any other electronic payment method.
If you received more than $20 in tips for the month, you should report it to your employer. That way you employer will properly withhold Federal, Social Security, and Medicare taxes.
Non-cash tips are tickets, passes or other items of value.
Splitting tips are when fellow employees divide tips to share a tip with other employees.
As an employee, you are responsible for keeping a record of tip income. It recommended that you keep a daily record of cash and noncash tips you received, as well as the value. If your tips don’t exceed $20, then you do not have to report the amount to your employer. Unless specified by your employer, no particular form must be used. You can write a statement and include the following and present it to your employer:
- Employee’s names, Address, Social Security Number
- Month or period (time frame)
- Total of tip income during the month or period