Quick Tax Tips For The Tax Season (Tip #18)

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Sir, You Forgot My Tip!

Here is a shameful secret: I only received a financial tip once as a tax professional! I received a lot of non-financial tips from clients like "Jamaal, Macys is having a sale in two days." Therefore, I usually don't have to worry about reporting tip income. However, there are millions of taxpayers that survive on tip income. You know Uncle Sam wants a piece of the action. Don't get caught unprepared in an IRS audit due to unreported tip income. All the information that you need on tip income can be found in the IRS Publication 531. In today's post, I will share with you a portion of Publication 531. I have also included a link to the Publication.

Reporting Tips on Your Tax Return

How to report tips. Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; Form 1040EZ, line 1; Form 1040NR, line 8; or Form 1040NR-EZ, line 3.

What tips to report. Generally, you must report all tips you received in 2016 on your tax return, including both cash tips and noncash tips. Any tips you reported to your employer as required in 2016 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.

However, any tips you received in 2016 that you reported to your employer as required after 2016 but before January 10, 2017, are not included in the wages shown in box 1 of your 2016 Form W-2. Do not include the amount of these tips on your 2016 tax return. Instead, include them on your 2017 tax return. Tips you received in 2015 that you reported to your employer as required after 2015 but before January 11, 2016, are included in the wages shown in box 1 of your 2016 Form W-2. Although these tips were received in 2015, you must report them on your 2016 tax return.

If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report on your income tax return any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees

SOURCE: https://www.irs.gov/publications/p531/ar02.html#en_US_2016_publink100022538