Tips Subject to Other Taxes

All tip income is subject to federal income tax. However, tips of less than $20 per month that are not reported to the employer are not subject to social security and Medicare taxes.

Individuals who receive $20 or more per month in tips from any one job must report their tips to their employer. The employer:

• Reports these tips as part of the wages on Form W-2, box 1, and
• Withholds social security and Medicare taxes and federal income tax on that income

For 2011 only, the social security tax rate an employee must pay on tips is decreased from 6.2% to 4.2%.