Did you know that your tip income is taxable? YES it is! The IRS published a remind about this in October 2022.
Do you have tip income? Then please be sure that you declare this income on your annual tax return. Now remember, tip income includes both cash AND non cash tips, (such as: tickets, passes or other goods or commodities that a customer gives the employee). The IRS recommends keeping track of your daily tips on IRS Form 4070A or a simple log will also do.
You are also required to report ALL your tips to your employer by the 10th of the following month and using IRS Form 4070, if your tips for the month exceed $20.
Tip income is subject to income tax as well as social security and medicare taxes.
For many service providers, tips can be significant and in my experience, often overlooked. Do be careful here. The IRS is aware of tip based employees and you may receive a notice if the tip income you declare appears lower than your peers. I highly recommend that you set aside a portion of your tips to cover taxes. We don’t like nasty surprises at tax time!