If you work in the service industry chances are that some of your income is from tips received for a service. The service may be a waiter/waitress, caddie, or a taxi service, etc. The tips you receive are considered taxable income. Here are some things to keep in mind for tax time.
* Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of non-cash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
* On your tax form in your gross income, you must include 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.
* If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
* Be sure to keep track of your tip income using a daily log throughout the year as proof of income at tax time.
Tips can be tricky. You can visit the irs.gov website for more tips on tips. At Summit CPA we offer multiple resources to assist you will your tax planning. Contact our office at (866) 497-9761 for an appointment with our advisors.