Case Study 1: Tips Not Reported to Employer

Fred works as a repairman during the week and as a barber on alternate Saturdays. His tips are less than $20 in any month, and he does not report them to his employer. The amounts from box 1 on his Forms W-2 show income of $23,500 (repairman) and $1,950 (barber). His unreported tip income was $200.

Fred will report $25,650 as wages on Form 1040. This is the total of his Forms W-2 income and his unreported tip income ($23,500 + $1,950 + $200).

Repairman W-2, box 1	$23,500
Barber W-2, box 1	$1,950
Barber Unreported Tips	$200
Form 1040	$25,650

How would this change if Fred did report his income to his employer? Click here for an explanation.

If Fred did report his tip income to his employer, the tips would be included in box 1 of the Form W-2 that he received from the barbershop. The amount in box 1 of that Form W-2 would be $2,150 ($1,950 plus $200). Fred would enter $25,650 as wages on Form 1040 ($23,500 plus $2,150).

Repairman W-2, box 1	$23,500
Barber W-2, box 1	$1,950 + 200 $2,150
Barber Unreported Tips	$200
Form 1040	$25,650

Income — Wages, Interest, etc. Workout

Tip Income

Case Study 1: Tips Not Reported to Employer