Tip Income

If taxpayers have the type of jobs that normally include income from tips (i.e. waiter/waitress, bellhop, motel/hotel housekeeper, etc.), be sure to ask about any tips they may have received.

All tip income is subject to federal income tax. Individuals who receive $20 or more per month in tips from one job must report their tip income to their employer. Tips that are reported to employers are included in the amount on Form W-2, boxes 1, 5, and 7.

Taxpayers who receive tips worth $20 or more in a month and do not report all of those tips to the employer must report the social security and Medicare taxes on the unreported tips as additional tax on Form 1040. Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to compute and report the additional tax.

Self-employed taxpayers should include their tips in gross receipts on Schedule C, for example, self-employed hair stylists and manicurists.

Question: Can taxpayers who did not report tips of $20 or more in a month to their employer ever use Form 1040EZ or 1040A to report those tips to the IRS?

Answer: No. Tips that were not reported to the employer must be reported on Form 1040; they cannot be reported on Form 1040EZ or 1040A.