Publication 3148 (Rev. 12-2021) Catalog Number 26307C Department of the Treasury Internal Revenue Service www.irs.gov

A Guide to Tip Income Reporting

for Employees Who Receive Tip Income

3

If you work and receive tips, 

this guide is for you.

The tip income you receive as an employee from the services whether cash or included in 

a charge — is taxable income. As taxable income, these tips are subject to federal income 

tax, social security and Medicare taxes, and may be subject to state income tax as well. The 

Internal Revenue Service (IRS) has prepared this guide to aid the employee who may need 

answers to tip income reporting questions.
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What tips do I have to report?

Do I have to report all my tips to my boss?

If you received $ 20.00 or more in tips in any one month, you 

should report all your tips to your employer so that federal 

income tax, social security and Medicare taxes, and maybe 

state income tax can be withheld.

Do I have to report all my tips on my tax 

return?

Yes. All tips are taxable income and should be reported on your 

tax return.

I was told that I had to report only a 

certain percentage of my total sales as 

tips. Is this true?

No. You must report to your employer all (100%) tips you 

receive, except for the tips from any month that do not total at 

least $20.00.

Sometimes I don’t get tips directly from 

customers, but rather from another 

employee. Do I need to report those tips?

Yes. Employees who receive tips from another employee are 

required to report “tip-outs.” Employees often disburse tips out 

of their earned tips to another employee. Remember, all tips are 

taxable income.

Do I have to report tip-outs that I pay to 

other employees?

No. You report to your employer only the amount of tips you 

retain. However, you must maintain records of tip-outs with 

your other tip income (cash tips, charged tips, split tips, tip 

pool).
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What records do I need to keep?

What type of records do I have to keep?

You must keep a running daily log of all your tip income. You 

can use Publication 1244, Employee’s Daily Record of Tips and 

Report to Employer, to record your tip income for one year. 

Publication 1244 includes Form 4070, Employee’s Report of 

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

Tips. These forms have spacing for you to log your name, the 

employer’s name and address, date tips were received, date of 

entry, cash and charge tips received, tips paid out, and name 

of employee paid. Your daily log would be your best proof 

should your income tax return be questioned. For a free copy 

of Publication 1244, call the IRS at 1-800-829-3676.

What can happen if I do not keep a 

record of my tips?

If it is determined in an examination that you underreported 

your tip income, the IRS will assess the taxes you owe based 

on the best available records of your employer. Tip income 

adds up. Underreporting could result in you owing substantial 

Federal Income, Social Security and Medicare penalties, and 

interest.

If I report all my tips to my employer, do I 

still have to keep records?

Yes. You should keep a daily log of your tips so that in case of 

an examination, you can substantiate the actual amount of tips 

received. There are a number of reasons why you might need 

records:

n Your return could be randomly selected for a federal income tax 

examination.

For example: Your Form 1040, U.S. Individual Income Tax Return, 

establishes that you have your own home, two cars, and three 

exemptions, and your Form W-2 shows that you earned only $10,000 

in income. In this scenario, an examination may occur if the examiner 

determines that income may have been underreported.

n A tip examiner could review your employer’s books and records. 

The examination could reveal unreported tip income that you 

may later need to verify.

n An Internal Revenue Service Center may run a match of your income information from your Form 1040, U.S. Individual Income 

Tax Return, with the income information from your Form W-2. If 

these figures do not match, you could receive a notice about the 

discrepancy and a possible examination of your tax return.
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How does this affect my income 

tax filing?

I forgot to report my tip income to my 

employer, but I remembered to record it 

on my federal income tax return. Will that 

present a problem?

If you do not report your tip income to your employer, but you 

do record the tip income on your federal income tax return, you 

may owe a 50% social security and Medicare tax penalty and 

be subject to a negligence penalty and possibly an estimated 

tax penalty. When you do not report your tips to your employer, 

it places your employer at risk of possible assessment of the 

employer’s share of social security and Medicare taxes.

If I report all my tips but my taxes on the 

tips are greater than my pay from my 

employer, how do I pay the remaining 

taxes?

You can either pay the tax when you file your federal income 

tax return or you can reach into your tip money and give some 

to your employer to be applied to those under-withheld taxes. 

Employer will then record these taxes and you will get credit on 

your Form W-2. If you wait to pay when you file your tax return, 

you may be subject to an estimated tax penalty.

What can happen if I don’t report my tips 

to the IRS?

If the IRS determines through an examination that you 

underreported your tips, you could be subject to additional 

federal income tax, social security and Medicare taxes, and 

maybe state income tax. Also, a penalty of 50% of the additional 

social security and Medicare taxes, and a negligence penalty of 

20% of the additional income tax, plus interest, may apply.

What’s in it for me if I report all my tip 

income?

There are many good reasons why you want to report all 

your tip income:

n Increased income may improve financing approval when applying for larger loan amounts (mortgage, car, and other loans)

n Increased worker’s compensation benefits, should you get hurt 

on the job

n Increased unemployment compensation benefits

n Increased social security and Medicare benefits (the more you 

pay, the greater your benefits)

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

n Check with your employer for other increased benefits (based 

on pay) that your company may offer, such as life insurance, 

disability payments, and the right to purchase stock options

n Compliance with the tax law
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Is tip reporting unique to a 

specific industry?

Does tip income reporting apply only to 

employees in a specific industry?

No. Anyone who receives tip income is required by law to report 

it to his or her employer. The Tip Rate Determination/Education 

Program (TRD/EP) was first promoted in the gaming industry 

(casino industry) in Las Vegas, Nevada, and subsequently 

to the food and beverage industry. Other individuals that 

receive tip income include airport skycaps, bartenders, hair 

stylists, bellhops, casino workers, delivery service people, golf 

caddies, hotel housekeepers, manicurists, masseuses, parking 

attendants, railroad redcaps, and taxi drivers.

Why should I report my tips to my 

employer?

When you report your tip income to your employer, the employer 

is required to withhold federal income taxes, social security and 

Medicare taxes, and maybe state income tax. 

Tip reporting may increase your social security credits resulting 

in greater social security and Medicare benefits when you retire. 

Tip reporting may also increase other benefits to which you 

may become entitled, such as unemployment benefits, worker’s 

compensation, or retirement benefits. Additionally, a greater 

income may improve financing approval for mortgage, car, and 

other loans.

Why has tip reporting become such an 

issue?

To report all tip income has always been the law. The IRS has 

put greater emphasis on reporting tip income over the past 

few years because a significant number of taxpayers are not 

reporting all their tip earnings as taxable income.
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What is this compliance program 

I’ve heard about?

My employer has entered into a 

compliance agreement with the IRS 

concerning tips. What is this?

The Tip Rate Determination/Education Program was developed 

in 1993 to help those employees receiving tip income and their 

employers understand the laws on reporting tip income. Under 

this program, and depending on your specific business, your 

employer may enter into one of three arrangements — the 

Tip Rate Determination Agreement (TRDA), the Tip Reporting 

Alternative Commitment (TRAC), or Gaming Industry Tip 

Compliance Agreement (GITCA). Ask your employer for more 

information about this program.

TRDA–What is my responsibility, 

as an employee, under the Tip Rate 

Determination Agreement?

You are required to file your federal tax returns. You may be 

asked to sign a Tipped Employee Participation Agreement 

proclaiming you are participating in the program. The employer, 

as a participant in the TRDA, has agreed with the IRS to a tip 

rate for the employer’s establishment. To stay a participating 

employee, you must report tips at or above the tip rate 

determined by the agreement. Furthermore, as part of the 

TRDA arrangement, the employer is required to report your 

name, social security number, the hours worked or sales made, 

your job classification shift, and your reported tips to the IRS if 

you do not participate in the program.

GITCA-What is my responsibility, as an 

employee, under the Gaming Industry Tip 

Compliance Agreement?

You are required to file your federal tax returns. You may 

be asked to sign a Model Gaming Employee Tip Reporting 

Agreement proclaiming you are participating in the program. 

The employer, as a participant in the GITCA, has agreed with 

the IRS to a tip rate for the employer’s establishment. To stay 

a participating employee, you must report tips at or above the 

tip rate determined by the agreement. Furthermore, as part of 

the GITCA arrangement, the employer is required to report your 

name, social security number, the hours worked or sales made, 

your job classification, venue, shift and your reported tips to 

the IRS if you do participate in the program.
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TRAC–What is my responsibility, as 

an employee, under the Tip Reporting 

Alternative Commitment?

Directly-tipped employee:

n Your employer will furnish you with a written statement (at least 

monthly) reflecting your charged tips

n You are to verify or correct this statement

n You are to indicate the amount of cash tips received

n When reporting your cash tips, you should remember that there 

is a correlation between charged tips and cash tips.

(Your employer may be able to inform you of the establishment’s 

charged sales to cash sales ratio. For example, if the establishment is 

50% charge and 50% cash, and you received and reported $100 in 

tips on charged receipts, it is reasonable to believe that you should be 

reporting close to $100 in cash tips.)

n You may be asked to provide the name and amount of any tipouts to indirectly-tipped employees. Does tip income reporting 

apply only to employees in a specific industry?

Indirectly-tipped employee:

n You are required to report all your tips to your employer. If the 

establishment has the directly-tipped employee provide the 

name and amount of tips shared with you, the establishment 

could provide you with a statement of tips that you would need 

to verify or correct.
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The IRS provides the following publications and forms 

relating to tip income reporting. These products can be 

downloaded from the IRS Web site at www.irs.ustreas.gov 

and ordered through the IRS by dialing 1-800-829-3676. 

(TTY/TDD equipment access, dial 1-800-829-4059)

Pub 505 – Tax Withholding and Estimated Tax

Pub 531– Reporting Tip Income

Pub 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 1040ES – Estimated Tax for Individuals

Form 4137 – Social Security and Medicare Tax on Unreported Tip Income

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