Tips are considered income and are subject to federal income tax. You must include all tips in your gross income regardless of if you received the tips directly, they were charged tips and paid by your employer or if you share tips and split them. The value of noncash tips, such as tickets, passes, or
other items of value, is also income and subject to tax.
Tips reported to employer
Tip amounts you reported to your employer are listed in Box 8 of your W-2 and will be added to the total income on your return. If you owe any additional tax Medicare or Social Security tax on the reported tips, Box 12 will be completed with information for Code A or Code B.
Tips not reported to employer
If your tips were more than $20 in a calendar month and you did NOT report these tips to your employer, you need to report your tips on your tax return. Add the unreported tips to Box 1 of your W-2. The amount listed here will be added to your total income.
Do I need to report anything else?
You are also required to complete Form 4137 in the account. This form is used to calculate the Medicare and Social Security tax on the unreported tip income. This can be found by taking the following pathway:
- Federal Section
- Other Taxes
- Social Security and Medicare Tax on Unreported Tip Income
For more information, see:
- Form 4137 Instructions- Social Security and Medicare tax on Unreported Tip Income
- Publication 531- Reporting Tip Income