Publication 3144 (Rev. 11-2021) Catalog Number 26288G Department of the Treasury Internal Revenue Service www.irs.gov

A Guide to Tip Income Reporting

for Employers in Businesses 

Where Tip Income is Customary

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If you are an employer of an employee who 

receives tip income, this guide is for you.

The Internal Revenue Service (IRS) began its Tip Rate Determination/Education Program (TRD/EP) in October 1993 for 

businesses where tip income is customary. The objective of the Program has been to improve and ensure compliance 

by employers and employees with statutory provisions relating to tip income.
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The Program of Tip Reporting

What tip reporting options are available?

 Tip Rate Determination Agreement (TRDA)

 Tip Reporting Alternative Commitment (TRAC)

 Institute your own reporting system to comply with the tax law

 Gaming Industry Tip Compliance Agreement (GITCA)

Under the Tip Rate Determination/Education Program (TRD/

EP), the employer may enter into a TRDA, a TRAC, or GITCA 

agreement, depending on the specific business. The IRS 

will assist applicants in understanding and meeting the 

requirements for participation. The next pages show how these 

agreements differ.

How does the program benefit my 

employees?

There are a number of reasons why an employee should report 

all of his/her tip income:

 Increased income may improve financial approval when 

applying for mortgage, car, and other loans

 Increased social security and Medicare benefits (the more you 

pay, the greater the benefits)

 Increased unemployment compensation benefits

 Increased employee pension, annuity, or 401(k) participation (if 

applicable)

 Increased workers’ compensation benefits, should your 

employees get hurt on the job
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How To Get Your Program Underway

How To Apply

To enter into one of the agreements by sending an e-mail to 

Tip.Program@irs.gov.

Who Should Apply

Currently, the IRS is offering participation in TRD/EP to 

employers who employees receive tip income in the normal 

course of your business. These agreements accommodate 

every tipping industry.

All employers with establishments where tipping is customary 

should review their operations.

When To Apply

An employer may apply for one of the agreements, depending 

on his/her specific business, at any time. The effective date of 

the arrangement is determined by receipt and handling of the 

employer’s application.

TRAC and TRDA are effective as of the first day of the quarter 

following the date the National Tip Reporting Compliance 

(NTRC) Program Manager signs the agreement.

The GITCA is effective on a mutually agreed upon date, 

generally the first day of a pay period.
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TRDA vs. TRAC vs. GITCA (how they differ)

TRAC TRDA GITCA

TRAC does not require that a tip rate 

be established but it does require 

the employer to: 

 establish a procedure where 

a directly-tipped employee is 

provided (no less than monthly) a 

written statement of charged tips 

attributed to the employee. 

 implement a procedure for the 

employees to verify or correct any 

statement of attributed tips. 

 adopt a method where an 

indirectly-tipped employee 

reports his or her tips (no less 

than monthly). This could include 

a statement prepared by the 

employer and verified or corrected 

by the employee. 

 establish a procedure where a 

written statement is prepared and 

processed (no less than monthly) 

reflecting all cash tips attributable 

to sales of the directly-tipped 

employee.

TRDA requires the IRS to work with 

the establishment to arrive at a tip 

rate for the establishment’s various 

occupations.

GITCA requires the IRS to work with 

the establishment to arrive at a tip 

rate for the establishment’s various 

occupations.

TRAC does not require an 

agreement between the employee 

and employer.

TRDA requires the employee to 

enter into a Tipped Employee 

Participation Agreement (TEPA) with 

the employer.

GITCA requires the employee 

to enter into a Model Gaming 

Employee Tip Reporting Agreement 

with the employer.
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TRAC TRDA GITCA

TRAC affects all (100%) employees. TRDA requires the employer to 

get 75% of the employees to sign 

TEPAs and report at or above the 

determined rate.

GITCA requires the employer to 

get 75% of the employees to sign 

Model Gaming Employee Tip 

Reporting Agreements and report at 

or above the determined rate.

TRAC provides that if the employees 

of an establishment collectively 

underreport their tip income, tip 

examinations may occur but only for 

those employees that underreport.

TRDA provides that if employees fail 

to report at or above the determined 

rate, the employer will provide 

the names of those employees, 

their social security numbers, job 

classification, sales, hours worked, 

and amount of tips reported.

GITCA provides that if employees 

fail to report at or above the 

determined rate, the employer 

will provide the names of those 

employees, their social security 

numbers, job classification, sales, 

hours worked, and amount of tips 

reported.

TRAC includes a commitment by the 

employer to educate and reeducate 

quarterly all directly and indirectlytipped employees and new hires of 

their statutory requirement to report 

all tips to their employer.

TRDA has no specific education 

requirement.

GITCA has no specific education 

requirement.

TRAC participation assures the 

employer that prior periods will not 

be examined as long as participants 

comply with the requirements under 

the agreement.

TRDA participation assures the 

employer that prior periods will not 

be examined as long as participants 

comply with the requirements under 

the agreement.

GITCA participation assures the 

employer that prior periods will not 

be examined as long as participants 

comply with the requirements under 

the agreement.
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Example of a TRAC Statement

Use the following “example” to help you develop your 

statement for your specific business, and provide a copy 

to your employees. (The following example is designed 

specifically for employees in the food and beverage industry.) 

A TRAC statement is given to an employee showing tips 

attributed to him/her. This example not only fulfills the 

statement required for charged tips but also for cash tip 

reporting and for indirectly-tipped employee reporting.
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Employer Portion

Employee Name: Mark Doe

Employee Address: 123 Main Street

City, State, Zip: Any Town, USA 12345

Employee SSN: 000-00-000

Job Category: Food Server

Establishment Name: ABC Bar & Grill

Employer EIN: 00-0000000

Report Period: 01/01/00 - 

01/31/00

Gross Sales: $6,000

Charged Sales w/Tips $2,000

Charged Tips; $380

Charged Tip Rate 19%

Sales Subject to Cash tips $4,000

Employee Portion

Cash Tips $720

Cash Tip Rate 18%

Tips Shared w/Others

Name: Job Category: Amount:

Johnny Noname Busser $120 

Total (120) 

Tips Recieved from Others

Name: Job Category: Amount

Susie Cue Cocktail $100 

Total 100 

Net tips kept and reportable: $1,080 

Employee Signature: Date: 

Employer fills out top portion.

Gross Sales: only include 

food & drink amount. Do not 

include tax, tip, or non-food/

drink items. 

Charged Sales: include 

charged sales that show a tip 

on food & drink amounts only. 

Do not include tax, tip or nonfood/drink items. 

(A charged sale with no tip is 

included as a cash sale.)

Employee fills out bottom 

portion. An indirectly-tipped 

employee would only receive 

(from the employer) the “title” 

portion of the statement filled 

out, unless employer captured 

“tips shared w/others” information from the directly-tipped 

employee’s TRAC Statement 

and showed it as “tips received 

from others”. 

Employee signs statement 

and gives a copy to employer, 

retaining a copy for his/her 

records. This statement would 

satisfy employer’s requirement 

under the TRAC arrangement 

and the employee’s requirement under the law. 

“title”
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Forms and Publications

The following is a list of IRS publications and forms relating to 

tip income reporting that can be downloaded from the IRS Web 

site at www.irs.ustreas.gov and can be ordered through the IRS 

by dialing 1-800-829-3676. (TTY/TDD equipment access, dial 

1-800-829-4059).

 Publication 505 – Tax Withholding and Estimated Tax

 Publication 531 – Reporting Tip Income

 Publication 1244 – Employee’s Daily Record of Tips and 

Report to Employer. This publication includes Form 4070, 

Employee’s Report of Tips to Employer, and Form 4070A, 

Employee’s Daily Record of Tips.

 Form 941 – Employer’s Quarterly Federal Tax Return

 Form 1040ES – Estimated Tax for Individuals

 Form 4137 – Social Security and Medicare Tax on Unreported 

Tip Income

 Form 8027 – Employer’s Annual Information Return of Tip 

Income and Allocated Tips

 Form W-2 – Wage and Tax Statement; and separate 

Instructions for Forms

 W-2 and W-3

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