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No income, Social Security, Medicare, additional Medi-
care, or railroad retirement taxes are withheld on allo-
Tipped Employees cated tips.
Reporting allocated tips. You must report all tips you
received during the year on your tax return, including
Reporting Tips to Your Employer both cash tips and noncash tips. Any tips you reported
to your employer are included in the wages shown on
Report to your employer only cash, check, and debit and your Form W-2, box 1. Add to the amount in box 1 only
credit card tips you receive.
the tips you didn’t report to your employer. This should
If your total tips for any one month from any one job are include any allocated tips shown on your Form(s) W-2,
less than $20, don’t report the tips for that month to that box 8, unless you have adequate records to show that
employer. you received less tips in the year than the allocated
If you participate in a tip-splitting or tip-pooling ar- figures.
rangement, report only the tips you receive and re- Report the wages and tips shown on your Form W-2,
tain. Don’t report to your employer any portion of the box 1, and allocated tips from box 8, on Form 1040, line 7.
tips you receive that you pass on to other employees. Note: You cannot file Form 1040A or Form 1040EZ when
However, you must report tips you receive from other you have allocated tips.
employees.
Form 4137, Social Security and Medicare Tax on Un-
Don’t report the value of any noncash tips, such as tick- reported Tip Income. Because Social Security, Medi-
ets or passes, to your employer. You don’t pay Social Se- care, and Additional Medicare taxes weren’t withheld
curity, Medicare, additional Medicare, or railroad re- from the allocated tips, you must report those taxes as
tirement taxes on these tips. additional tax on your return. Complete Form 4137, and
How to report. If your employer doesn’t give you any include the allocated tips on line 1 of the form.
other way to report tips, you can use Form 4070, Employ-
ee’s Report of Tips to Employer, available at www.irs.gov.
When to report. Give your report for each month to
your employer by the 10th of the next month. If the 10th
falls on a Saturday, Sunday, or legal holiday, give your
employer the report by the next day that isn’t a Satur-
day, Sunday, or legal holiday.
Allocated Tips
If your employer allocated tips to you, they’re shown
separately on your Form W-2, box 8. They aren’t includ-
ed in box 1 with your wages and reported tips. If box 8 is
blank, this discussion does not apply.
Allocated tips are tips that your employer assigned to
you in addition to the tips you reported to your employ-
er for the year. Your employer will have done this if: Contact Us
• You worked in an establishment such as a restaurant, There are many events that occur during the year that can affect
cocktail lounge, or similar business that must allocate your tax situation. Preparation of your tax return involves sum-
marizing transactions and events that occurred during the prior
tips to employees, and year. In most situations, treatment is firmly established at the
• The tips you reported to your employer were less than time the transaction occurs. However, negative tax effects can
your share of 8% of food and drink sales. be avoided by proper planning. Please contact us in advance
if you have questions about the tax effects of a transaction or
event, including the following:
• Pension or IRA distributions. • Retirement.
• Significant change in income or • Notice from IRS or other
deductions. revenue department.
• Job change. • Divorce or separation.
This brochure contains general information for taxpayers and • Marriage. • Self-employment.
should not be relied upon as the only source of authority. • Attainment of age 59½ or 70½. • Charitable contributions
Taxpayers should seek professional tax advice for more information. • Sale or purchase of a business. of property in excess of
• Sale or purchase of a residence $5,000.
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