Why report tips to your employer?
You must report tips to your employer so that:
- Your employer can withhold federal income tax and social
security and Medicare taxes or railroad retirement tax,
- Your employer can report the correct amount of your earnings
to the Social Security Administration or Railroad Retirement Board
(which affects your benefits when you retire or if you become
disabled, or your family's benefits if you die), and
- You can avoid the penalty for not reporting tips to your
employer (explained later).
What tips to report.
Report to your employer only cash, check, or credit card tips you
receive.
If your total tips for any one month from any one job are less than
$20, do not report them to your employer.
Do not report the value of any noncash tips, such as tickets or
passes, to your employer. You do not have to pay social security and
Medicare taxes or railroad retirement tax on these tips.
How to report.
You can use Form 4070, Employee's Report of Tips to
Employer. To get a year's supply of the form, ask the IRS or
your employer for Publication 1244. Fill in the information asked for
on the form, sign and date the form, and give it to your employer. A
sample filled-in Form 4070 is shown later.
Filled-in Form 4070
If you do not use Form 4070, give your employer a statement with
the following information.
- Your name, address, and social security number.
- Your employer's name, address, and business name (if it is
different from the employer's name).
- The month (or the dates of any shorter period) in which you
received tips.
- The total tips required to be reported for that
period.
You must sign and date the statement. You should keep a copy
with your personal records.
Your employer may require you to report your tips more than once a
month. However, the statement cannot cover a period of more than one
calendar month.
Electronic tip statement.
Your employer can have you furnish your tip statements
electronically.
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 is not a Saturday,
Sunday, or legal holiday.
Example 1.
You must report your tips received in June 2001 by July 10, 2001.
Example 2.
You must report your tips received in January 2001 by February 12,
2001. February 10 is on a Saturday, and the 12th is the next day that
is not a Saturday, Sunday, or legal holiday.
Final report.
If your employment ends during the month, you can report your tips
when your employment ends.
Penalty for not reporting tips.
If you do not report tips to your employer as required, you may be
subject to a penalty equal to 50% of the social security and Medicare
taxes or railroad retirement tax you owe on the unreported tips. (For
information about these taxes, see Reporting social security and
Medicare taxes on tips not reported to your employer under
Reporting Tips on Your Tax Return, later.) The penalty amount is
in addition to the taxes you owe.
You can avoid this penalty if you can show reasonable cause for not
reporting the tips to your employer. To do so, attach a statement to
your return explaining why you did not report them.
Giving your employer money for taxes.
Your regular pay may not be enough for your employer to withhold
all the taxes you owe on your regular pay plus your reported tips. If
this happens, you can give your employer money until the close of the
calendar year to pay the rest of the taxes.
If you do not give your employer enough money, your employer will
apply your regular pay and any money you give to the taxes, in the
following order:
- All taxes on your regular pay,
- Social security and Medicare taxes or railroad retirement
tax on your reported tips, and
- Federal, state, and local income taxes on your reported
tips.
Any taxes that remain unpaid can be collected by your employer from
your next paycheck. If withholding taxes remain uncollected at the end
of the year, you may be subject to a penalty for underpayment of
estimated taxes. See Publication 505,
Tax Withholding and
Estimated Tax, for more information.
You must report on your tax return any social security and Medicare
taxes or railroad retirement tax that remained uncollected at the end
of 2000. See Reporting uncollected social security and Medicare
taxes on tips under Reporting Tips on Your Tax
Return, later. These uncollected taxes will be shown in box 13
of your Form W-2 (codes A and B).
Tip Rate Determination and Education Program
Your employer may participate in the Tip Rate Determination and
Education Program. The program was developed to help employees and
employers understand and meet their tip reporting responsibilities.
There are two agreements under the program -- the Tip
Rate Determination Agreement (TRDA) and the Tip Reporting
Alternative Commitment (TRAC). Your employer can provide you
with a copy of these agreements. To find out more about this program,
contact the Tip Coordinator for your local IRS office.
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