Tip Income

Tip income is considered taxable and is generally subject to Federal income tax, Social Security tax, and Medicare tax. Taxable tips include cash tips you get directly from customers, tips from customers using credit cards, and the value of any non-cash tips such as tickets, passes, or other items of value.

Employee Responsibilities

As an employee who earns tips you must: 

• Keep a daily tip record to accurately keep track of how much you earn in tip income.
• Report tips to your employer if you earn more than $20 in tips during the month so that Social Security and Medicare tax can be withheld from your tip income.
• Report all your tips on your income tax return

Unless specified by your employer, no particular form is required to report your tip income. Instead, you can write a statement and present it to your employer. Include the following information:

• Employee’s names, Address, Social Security Number
• Month or period (time frame)
• Total tip income during the month or period

 The One Big Beautiful Bill: No Tax on Tips

The new “No Tax on Tips” deduction provides a federal income tax break for tipped workers from 2025 through 2028.

This deduction allows eligible employees and self-employed individuals to exclude up to $25,000 of qualifying tip income from their taxable income. It is available to all taxpayers, including those who itemize or take the standard deduction.

To qualify, tips must be properly reported on a Form W-2 or a 1099 income statement and received in an occupation the IRS officially recognizes as ‘customarily and regularly’ receiving tips. The deduction phases out if a taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 if married and filing jointly).

To be eligible, tips must be earned in an IRS-specified occupation, and married claimants must file jointly.

Related Questions

Taxable vs Non-Taxable Income

Standard & Itemized Deductions

State and Local Tax Deduction

This entry was posted on Monday, July 2nd, 2018 at 6:14 pm and is filed under Deductions, Income. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.