All tips you receive are income and are subject to federal income tax. You must include in gross income all tips you receive directly from customers, tips from charge customers that are paid to your employer, and your share of any tips you receive under a tip-splitting arrangement with fellow employees. If your employer reports allocated tips separately in box 8 of your Form W2, you must file Form 1040 to report them. Include the amount of allocated tips in your gross income unless you can prove that you received less. If you have adequate records to show that you received less, see Publication 531. Some hotels and restaurants require customers who use the dining or banquet rooms to pay a service charge. Your share of this charge is part of your wages paid by your employer and is not a tip.

If you receive tips of $20 or more in any one month while working for any one employer, you must report the entire amount to that employer by the l0th day of the next month.

If you received tips of $20 or more in any one month and did not report them to your employer, you must report them as income on your return, and you may owe Social Security and Medicare taxes on them. Calculate the amount of Social Security and Medicare taxes on Form 4137 and attach the form to your return. Include the amount from Form 4137 on the appropriate line of Form 1040.

If you are an employee subject to the Railroad Retirement Tax Act, do not file Form 4137 or pay the tax with your income tax return, instead contact your employer. Your employer will collect the tax.

If you receive tips of less than $20 during any one month while working for one employer, you do not have to report them to that employer, but you must include these tips in your income.

You must report tips to your employer so that he or she can withhold federal income tax, Social Security, Medicare tax, or Railroad Retirement tax on the tips you report. Any tips you reported to your employer are included in the wages on your Form W2.

If you do not report tips to your employer as required, you may be subject to a penalty, in addition to the tax you owe. For more information, see Publication 531, Reporting Tip Income.

Publication 1244, which contains Form 4070A, Employee's Daily Record of Tips, and Form 4070, should also be helpful to you. Forms and publications may be downloaded from this site or ordered by calling 1-800-829-3676.

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