CPA Accountant

Phoenix Tax Prep | Get Tipped?

Many employees who work at places that survive based on tips fail to accurately report the amount of tips they receive. What they fail to realize is that by not reporting all of your tip income, you actually are hurting yourself in the long run. By not reporting your tips correctly, your Social Security will be lower and you could be subject to huge penalties and interest should the IRS audit your tax return. If you get tips at your place of employment, there are some things you need to know about tips and taxes.

  • Show all of your tips on your tax return. You are required to report all of the tips you receive on your federal income tax return. This includes the value of tips that are not in cash.
  • All tips are taxable. You must pay income tax on all tips you received during the year This includes tips received directly from customers and tips added on by credit cards. It also includes any tips received from a tip splitting agreement with other employees.
  • Report your tips to your employer. If you receive $20 or more in one month in tips, you must report your tips for that month to your employer. You should onnly include cash, check and credit card tips you received. Do not report the value of any non-cash tips. Your employer is required to withhold federal income tax, Social Security and Medicare taxes on the reported tips.
  • Keep a daily log of the tips you receive. You can use Publication 1244┬áto help you organize your records. This will help you to keep track and report the correct amount of tips on your tax return.

If you would like more information or would like to discuss this further, feel free to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.