Do you know the tax implications?

Many taxpayers are getting summer jobs at golf courses, restaurants or festivals where they will be receiving tips. These employees need to be aware of the tax consequences associated with this type of payment.

Tips are income. All cash tips you receive directly from customers, tips added to credit cards and your share of any tips you receive under a tip-splitting arrangement with fellow employees are considered income.

Tips are taxable. Tips are subject to federal income, social security and Medicare taxes. The value of noncash tips, such as tickets, passes or other items of value, are also income and subject to tax.

Tip off your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, social security and Medicare taxes on the reported tips.


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