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Tips


Reporting Tips

Employees who receive cash tips of $20 or more in a calendar month, are required to report to you the total amount of tips they receive.

The employees must give written reports to the employer by the tenth of the following month. Employees who receive tips of less than $20 in a calendar month are not required to report their tips, but must report these amounts as income on their tax returns and pay taxes, if any.

Cash tips include tips received directly from customers, tips from other employees under any tip-sharing arrangement, and charged tips (e.g., credit and debit card charges) that employer distributes to the employee. Both directly and indirectly tipped employees must report tips received to their employer.

Employees can use Form 4070 A – Employee Daily Record for Tips, to keep a daily record of their tips, and 4070 – Employee Report for Tips, to report their tips to the employer.


Non-Tip Wages

Service charges added to a bill or fixed by the employer that the customer must pay, when paid to an employee, will not constitute a tip but rather constitute non-tip wages. These non-tip wages are subject to social security tax, Medicare tax, and federal income tax withholding. In addition, the employer cannot use these non-tip wages when computing the credit available to employers under section 45B of the Internal Revenue Code, because these amounts are not “tips.” Common examples of service charges (sometimes called “auto-gratuities”) in service industries are:

  • Large Party Charge (restaurant)
  • Bottle Service Charge (restaurant and night-club)
  • Room Service Charge (hotel and resort)
  • Contracted Luggage Assistance Charge (hotel and resort), and
  • Mandated Delivery Charge (pizza or other retail deliveries)

Allocated Tips

Allocated tips are tips assigned to the employee by the employer. These tips are in addition to the tips that employees report to his/her employer. An employer can allocated tips only if all the following are true:

  • Employee worked in a restaurant, cocktail lounge, or similar business that must allocate tips to employees.
  • The tips reported to the employer were less than employee’s share of 8 percent of food and drink sales.
  • Employee did not participate in your employer’s Attributed Tip Income Program.

Allocated tips are reported in box 8 of Form W-2 and are not subject to Social Security and Medicare tax withholding. Employee must fill out Form 8027 – Annual Return for Tips, reporting the amount from box 8 on line 1.


Forms

W-2
8027 – Annual Return for Tips
8027 T – Transmittal of Annual Return for Tips
8846 – Employer Credit for Social Security & Medicare
4070 – Employee Report for Tips
4070 A – Employee Daily Record for Tips

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