| Pub. 531, Reporting Tip Income |
2005 Tax Year |
Publication 531 - Main Contents
Keeping a Daily Tip Record
Why keep a daily tip record?
You must keep a daily tip record so you can:
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Report your tips accurately to your employer,
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Report your tips accurately on your tax return, and
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Prove your tip income if your return is ever questioned.
How to keep a daily tip record.
There are two ways to keep a daily tip record. You can either:
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Write information about your tips in a tip diary, or
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Keep copies of documents that show your tips, such as restaurant bills and credit card charge slips.
You should keep your daily tip record with your personal records. You must keep your records for as long as they are important
for
administration of the federal tax law. For information on how long to keep records, see Publication 552, Recordkeeping for
Individuals.
If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips.
To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for
Publication 1244, Employee's Daily Record of Tips and Report to Employer. Publication 1244 includes a year's supply of Form
4070A. Each day, write in
the information asked for on the form. A filled-in Form 4070A is shown on this page.
If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business
if it is different from
your employer's name. Then, each workday, write the date and the following information.
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Cash tips you get directly from customers or from other employees.
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Tips from credit card charge customers that your employer pays you. (Also include tips from debit card charge customers.)
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The value of any noncash tips you get, such as tickets, passes, or other items of value.
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The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names
of the employees
to whom you paid the tips.
Do not write in your tip diary the amount of any service charge that your employer adds to a
customer's bill and then pays to you and treats as wages. This is part of your wages, not a tip.
Electronic tip record.
You may use an electronic system provided by your employer to record your daily tips. You must receive and keep a
paper copy of this record.
Reporting Tips to Your Employer
Why report tips to your employer?
You must report tips to your employer so that:
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Your employer can withhold federal income tax and social security and Medicare taxes or railroad retirement tax,
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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
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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, debit, 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 the tips for that month to
that employer.
Do not report the value of any noncash tips, such as tickets or passes, to your employer. You do not pay social security
and Medicare taxes or
railroad retirement tax on these tips.
How to report.
If your employer does not give you any other way to report your tips, you can use Form 4070, Employee's Report of
Tips to Employer.
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 on this page. To get a year's supply of the form, ask the IRS or your
employer for Publication
1244.
If you do not use Form 4070, give your employer a statement with the following information.
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Your name, address, and social security number.
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Your employer's name, address, and business name (if it is different from the employer's name).
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The month (or the dates of any shorter period) in which you received tips.
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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 April 2006, by May 10, 2006.
Example 2.
You must report your tips received in May 2006, by June 12, 2006. June 10th 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.
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All taxes on your regular pay.
-
Social security and Medicare taxes or railroad retirement tax on your reported tips.
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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.
Uncollected taxes. You must report on your tax return any social security and Medicare taxes or
railroad retirement tax that remained uncollected at the end of 2005. 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 12 of your 2005 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). In addition, employers in the food and beverage industry may be able to get approval of an
employer-designed EmTRAC
program. For information on the EmTRAC program, see Notice 2001-1, which is on page 261 of Internal Revenue Bulletin 2001-2
at
www.irs.gov/pub/irs-irbs/irb01–02.pdf.
If you are employed in the gaming industry, your employer may have a Gaming
Industry Tip Compliance Agreement Program. See Revenue Procedure 2003-35, which is on page 919 of Internal Revenue Bulletin
No. 2003-20 at
www.irs.gov/pub/irs-irbs/irb03–20.pdf.
Your employer can provide you with a copy of any applicable agreement. If you want to learn more about these agreements, contact
your local IRS
Taxpayer Education Communication (TEC) office. You may call 1-800-829-4933 for the IRS TEC office in your area or send an
email to
TEC.TIP.Program@irs.gov.
Reporting Tips on Your Tax Return
How to report tips.
Report your tips with your wages on line 1, Form 1040EZ, or line 7, Form 1040A or Form 1040.
What tips to report.
You must report all tips you received in 2005, including both cash tips and noncash tips, on your tax return. Any
tips you reported to your
employer for 2005 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you
did not report to your
employer.
If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see
Reporting social
security and Medicare taxes on tips not reported to your employer , later.
If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips ,
later.
If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add
the following tips to the
amount in box 1 of your Form W-2.
-
Cash and charge tips you received that totaled less than $20 for any month.
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The value of noncash tips, such as tickets, passes, or other items of value.
Example.
John Allen began working at the Diamond Restaurant (his only employer in 2005) on June 30 and received $10,000 in wages during
the year. John kept
a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. He was not
required to report his
June tips to his employer, but he reported all of the rest of his tips to his employer as required. The sample filled-in forms
on page 2 and page 3
show his daily tip record (Form 4070A) and his report to his employer (Form 4070) for October.
John's Form W-2 from Diamond Restaurant shows $17,000 ($10,000 wages + $7,000 reported tips) in box 1. He adds the $18 unreported
tips to that
amount and reports $17,018 as wages on his tax return.
Reporting social security and Medicare taxes on tips not reported to your employer.
If you received $20 or more in cash and charge tips in a month from any one job and did not report all of
those tips to your employer, you must report the social security and Medicare taxes on the unreported tips as additional tax
on your return. To report
these taxes, you must file a return even if you would not otherwise have to file. You must use Form 1040. (You cannot file
Form 1040EZ or Form 1040A.)
Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to figure these taxes. Enter the tax on line
59, Form 1040, and attach the Form 4137 to your return.
If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported
tips. To get railroad
retirement credit, you must report tips to your employer.
Reporting uncollected social security and Medicare taxes on tips.
If your employer could not collect all the social security and Medicare taxes or railroad retirement tax
you owe on tips reported for 2005, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). You must
report these amounts as
additional tax on your return. You may have uncollected taxes if your regular pay was not enough for your employer to withhold
all the taxes you owe
and you did not give your employer enough money to pay the rest of the taxes.
To report these uncollected taxes, you must file a return even if you would not otherwise have to file. You must use
Form 1040. (You cannot file
Form 1040EZ or Form 1040A.) Include the taxes in your total tax amount on line 63, and enter “ UT” and the total of the uncollected taxes on the
dotted line next to line 63.
Self-employed persons.
If you receive tips as a self-employed person, you should report these tips as income on Schedule C or C-EZ. See
Publication 334, Tax Guide for Small Business, for more information on reporting business income.
If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. They are not included in box
1 with your wages and
reported tips. If box 8 is blank, this discussion does not apply to you.
What are allocated tips?
These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year.
Your employer will have done
this only if:
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You worked in a restaurant, cocktail lounge, or similar business that must allocate tips to employees, and
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The tips you reported to your employer were less than your share of 8% of food and drink sales.
How were your allocated tips figured?
The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from
8% (or an approved lower rate)
of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). Your share of that amount
was figured using either
a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours
worked. For information
about the exact allocation method used, ask your employer.
Must you report your allocated tips on your tax return?
You must report allocated tips on your tax return unless either of the following exceptions applies.
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You kept a daily tip record, or other evidence that is as credible and as reliable as a daily tip record, as required under
rules explained
earlier.
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Your tip record is incomplete, but it shows that your actual tips were more than the tips you reported to your employer plus
the allocated
tips.
If either exception applies, report your actual tips on your return. Do not report the allocated tips. See What tips to report under
Reporting Tips on Your Tax Return, earlier.
How to report allocated tips.
If you must report allocated tips on your return, add the amount in box 8 of your Form W-2 to the amount in box 1.
Report the total as wages on
line 7 of Form 1040. (You cannot file Form 1040EZ or Form 1040A.)
Because social security and Medicare taxes were not withheld from the allocated tips, you must report those
taxes as additional tax on your return. Complete Form 4137, and include the allocated tips on line 1 of the form. See Reporting social security
and Medicare taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier.
How to request an approved lower rate.
Your employer can use a tip rate lower than 8% (but not lower than 2%) to figure allocated tips only if the IRS approves
the lower rate. Either the
employer or the employees can request approval of a lower rate by filing a petition with the IRS. The petition must include
specific information about
the business that will justify the lower rate. A user fee must be paid with the petition.
An employee petition can be filed only with the consent of a majority of the directly-tipped employees (waiters,
bartenders, and others who receive tips directly from customers). The petition must state the total number of directly-tipped
employees and the number
of employees consenting to the petition. Employees filing the petition must promptly notify the employer, and the employer
must promptly give the IRS
a copy of any Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, filed by the employer for
the previous 3 years.
For more information about how to file a petition and what information to include, see the instructions for Form 8027.
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from
the IRS in several
ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
Contacting your Taxpayer Advocate.
If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights
and resolving problems that
have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision,
they can clear up
problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.
To contact your Taxpayer Advocate:
-
Call the Taxpayer Advocate toll free at
1-877-777-4778.
-
Call, write, or fax the Taxpayer Advocate office in your area.
-
Call 1-800-829-4059 if you are a TTY/TDD user.
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Visit
www.irs.gov/advocate.
For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese,
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Vietnamese, in addition to English and Spanish).
Free tax services.
To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of
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and a list of TeleTax
topics.
Internet. You can access the IRS website 24 hours a day, 7 days a week, at
www.irs.gov to:
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E-file your return. Find out about commercial tax preparation and e-file services available free to eligible
taxpayers.
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Check the status of your 2005 refund. Click on Where's My Refund. Be sure to wait at least 6 weeks from the date you filed your
return (3 weeks if you filed electronically). Have your 2005 tax return available because you will need to know your social
security number, your
filing status, and the exact whole dollar amount of your refund.
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Download forms, instructions, and publications.
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Order IRS products online.
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Research your tax questions online.
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Search publications online by topic or keyword.
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View Internal Revenue Bulletins (IRBs) published in the last few years.
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Figure your withholding allowances using our Form W-4 calculator.
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Sign up to receive local and national tax news by email.
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Phone. Many services are available by phone.
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Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications
and prior-year forms and instructions. You should receive your order within 10 days.
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Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
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Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An
employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local
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publications.
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TeleTax topics. Call 1-800-829-4477 and press 2 to listen to pre-recorded messages covering various tax topics.
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Refund information. If you would like to check the status of your 2005 refund, call 1-800-829-4477 and press 1 for automated
refund information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if
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Have your 2005 tax return available because you will need to know your social security number, your filing status, and the
exact whole dollar amount
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Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers,
we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to
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Walk-in. Many products and services are available on a walk-in basis.
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Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and
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Tax Map: an electronic research tool and finding aid.
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Tax Topics from the IRS telephone response system.
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Internal Revenue Bulletins.
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All the business tax forms, instructions, and publications needed to successfully manage a business.
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Tax law changes for 2005.
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IRS Tax Map to help you find forms, instructions, and publications by searching on a keyword or topic.
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Web links to various government agencies, business associations, and IRS organizations.
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“Rate the Product” survey—your opportunity to suggest changes for future editions.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or
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