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Case Study 1: Tips Subject to Other TaxesCarla is a waitress at a café. Her employer reports the tips that are charged to credit cards, but leaves it up to Carla to keep track of her cash tips, which amount to more than $20 per month. Since Carla doesn't report her cash tips to her employer, they are not included on her Form W-2. Carla includes the unreported tips as income on Form 1040 as wages. Unreported tips are entered on the W-2 screen. Click here for an explanation. If the employee received $20 or more in unreported tips (cash and charge) in any month from any job, the employee must report that income on Form 1040 and pay the Social Security and Medicare taxes on that income. But, employees who received less than $20 in tips, in any month from any job, are not required to report them to their employer; the tips are not subject to Social Security or Medicare taxes. These tips must, however, be included on Form 1040. |
