If you work in an occupation where you receive tips, they are considered taxable income. Regardless of whether the tips are cash or non-cash, they are subject to federal income, Social Security, and Medicare taxes. The tips received must be included on your income tax return. If you receive $20 or more worth of tips in one year, you should report them to your employer so that they can withhold the taxes for you. The amount of tips as well as the amount of taxes withheld will then appear on your W-2 for your tax return. To help you keep track of your tips, you can use IRS Publication 1244.
Here is a short list of common positions that receive tips:
- Taxi Drivers/Chauffeurs
- Dog Groomers
- Delivery Drivers
Even if your profession is not listed, do not think that you are exempt from having your tips taxed. Remember that any occupation that receives tips is subject to these taxes!