How to Claim Tips on Your Tax Return

New to the Tax Return Business and Need Help?  

To the IRS, tips are just as taxable as wages. So if you earn tips, then you are also responsible for paying income, Social Security, and Medicare tax on the money you receive. The following are a few tips when it comes to filling out a tax return, or you could just call Serita Lombard, CPA for help.

Record how much tip income you bring in

The IRS requires everyone to report their total monthly tips to their employers by the 10th of the following month. So, if your employer does not have a process in place for reporting tip income, you can use Form 4070. If you fail to report this to your employer, the IRS will impose a penalty that is equal to 50% of the Social Security and Medicare tax that you fail to pay.

Keeping track of any tips you pay, share, or pool

You can reduce the number of reportable tips when you share some of it with other employees. For instance, if you receive a $125 tip and give the bartender $35, then you only need to report $90 in tips.

Check your W-2 upon receipt

If you did not earn enough in either wages and tips that your employer pays to you to cover your tax withholding, a W-2 will show how much tax you owe. If the amount you underpay is major, you could be liable for tax penalties once you file a tax return.

Fill out Form 4137 for unreported tip income

This will cover the times when your tips were less than $20, in addition to the value of any non-cash tips received. Add this to your reported tips and wages in order to get your total taxable income. Form 4137 will come with instructions for calculating the Social Security and Medicare tax you have to pay on your unreported tip income.

If you need help with your tax return, or for details on our services, please do not hesitate to call us today at (770) 443-5437 for an appointment, we are based in Dallas, GA.

Review Us