Tax filing season won’t be back around until next spring, but that doesn’t mean you can hit snooze on your tax responsibility. This is especially true for anyone who receives tip income as part of their work, including waitstaff, bartenders, and taxi drivers, to name a few.
Obligation to Report Tip Income
If you receive tips, you are required to report those earnings to your employer monthly. Your employer may already know about some of the tips (such as tips added to a credit card bill, for example), but cash tips should also be recorded and reported as well.
The reason for this is that, in the eyes of the IRS, tips make up part of your wages. Therefore, they are subject to withholdings just like your regular pay is. Since tips are often paid directly to you rather than coming through your employer, though, you have to close that loop and keep your employer up-to-date on your earnings.
Employer Share of Withholdings
While it might be tempting to try to keep your tips “under the table,” it’s really not in your best interest to do so. That’s because, when you report tip income to your employer they have a financial responsibility to pay the employer share of social security and Medicare taxes. They are also responsible for including all employee tip income when they file their annual Federal Unemployment Tax Return.
Therefore, if you don’t report your tips to your employer, getting them to pay their portion of these taxes is much harder, if not impossible. Reporting tips to your employer is also the law, so it’s a good idea to do it no matter what!
If you need help determining what you need to report or how to keep track of your tip income, reach out to the team at Taxation Solutions, Inc. today. We’re here to help with your tax planning and preparation needs in Cincinnati, and we look forward to serving you!