Why should we report tips?

posted in: Payroll Basics | 0

The question is why should you report tip income to your employer?

 

Reporting tips along with other pay are used to determine the amount of your benefits from Social Security and the amount your family may receive in case of retirement, disability or death. Furthermore, reported tips will also be considered to determine if you are eligible for Medicare benefits when you get disabled or you reach 65.

Meanwhile, tipped employees of large food and beverage companies who under-report could be subject to tip allocations on which they could owe additional taxes. Also, under-reported tip earnings could be a subject to a penalty equal to 50% of your Medicare and Social Security tax on the un-reported tips plus the unpaid tax you owe.

 

 

Who must report tips?

Usually, workers of food and beverage operations receive tips. However it is required for any workers who receive tips such as cab drivers, hair dressers, and casino dealers to report tips.

 

 

What payments are tips?

A tip is defined as a voluntary payment given by a customer. The amount must be decided only by the customer, and must not be influenced and dictated by the employer policy, nor be subject to negotiation with the employer. Tips payments come in cash, by check or credit card or an account. In case a customer gives you passes, tickets, goods or services and other non-cash tips, you don’t have to report the value of these to your employer. Nevertheless, it is taxable on your income tax return.

You can use IRS Form 4070 in reporting tips to your employer. Otherwise, here is the information needed in reporting your tips in any format and in writing.

  • The tips’ amount
  • The name & address of your employer
  • Your Social Security Number
  • Your name & address
  • The time covered
  • The report’s date
  • Your signature

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