Bookkeeping Tips on Tips

If you are a hairdresser, waiter or waitress or if you work at a barber shop, golf course, hotel, casino or drive a taxicab, the money you receive from those services is taxable income. Did you know?

1) Your Tip income is taxable. The additional income you receive from working as a hairdresser, waiter or waitress are subject to federal income tax as well as Social Security and Medicare taxes. It may also be subject to state income tax as well. The value of non-cash additional income, such as from tickets or trinkets, is income and is also subject to federal income tax.

2) You need to report your tip income to your employer. If you receive twenty dollars or more in additional income in any given month then you should report the amount you receive to your employer. Your employer in turn is then required to withhold federal income tax, Social Security and Medicare taxes from each of your paychecks.

3) Make sure to keep a daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips to record your additional income. This special IRS publication can be found at the IRS website at irs.gov

4) You must include your tip income on your tax return. You must include in income all additional cash you receive directly from customers, or that is added to credit cards, and the share of any that you receive under a tip-splitting arrangement with your fellow co-workers/employees.

Please check out IRS Publication 531, or IRS Publication 3148 for more information. You can find these forms and more at the IRS website.

Source by Stephanie Horne

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Bookkeeping Tips on Tips