How to Report Restaurant Tax Tips

One in an occasional series of articles about your taxes.

The IRS requires restaurant workers to claim all tip income received. This includes tips you received from charge customers as well as cash received directly from customers. We’ll take a look at these requirements and offer some tips on how to handle your tips.

Forms and Taxes

You are required to declare what you earn on Form 4070 — Employee’s Report of Tips to Employer — a report that is due on the 10th day of the month after your tips have been received. You must sign the form or a similar statement showing your full name, your address and your Social Security Number. This form is not required for those months where your tip income is below $20 for any one employer.

Your employer is responsible for filing the proper paperwork to the IRS. Employers reference IRS Publication 1244 — Employee’s Daily Record of Tips and Report to Employer, which includes Form 4070 and Form 4070A — Employee’s Daily Record of Tips. Your employer is required to collect income tax, your Social Security tax and a Medicare tax based on the tips you’ve report. Employers may collect these taxes through the wages you receive or funds you pay to meet this requirement.

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Tax Time

When tax time rolls around, your employer(s) will issue Form W-2 to you, assigning allocated tips to Box 8 of that form. This information is reported to the IRS and must be included when you file your tax return. You should also keep record of your tips and report any amount above what your employer shows. Employers are required to send W-2 forms by January 31 — if you are missing a form, then contact the employer to have one issued. You can ask your employer to amend the form too if you discover a mistake.

Final Thoughts

Failing to report tip income can lead to serious consequences both with your employer and with the IRS. If you under report your tips, your employer can terminate you. In addition, if you are a tax scofflaw, then the IRS can go after you, potentially making your life miserable. Always report what you make and you’ll keep everyone happy.