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IRS Form 4070: How are tips reported on the tax return?

Numerous workers across different professions receive tips as a portion or the bulk of their earnings which must be reported to the IRS. We’ll explain how.

Reporting tips to Uncle Sam

The 2023 tax season is underway and Americans will have until 18 April to submit a 2022 tax return, unless you ask for an extension (note: all pending taxes owed must be paid by Tax Day). But if you are one of the millions of Americans that receives tips as part or the bulk of your income, you are required to report those gratuities on a monthly basis.

The Internal Revenue Service provides those who receive tips the Form 4070: Employee’s Report of Tips to Employer which is given to your employer for the purpose of withholding federal income, Social Security and Medicare taxes. Failure to declare tips, including those earned in cash directly from customers, from a tip-sharing program and those received through credit or debit cards, can result in a penalty.

Employers must send employees a W-2 form which documents the wages they paid the worker by the end of January. On that form, along with the wages that were earned will be included the tips reported to the employer and the amount of taxes paid. Those amounts will be used when filing out your tax declaration.

IRS Form 4070: How are tips reported?

Everyday that a tipped employee works, they must keep track of the tips that they receive. They can do this using the IRS Form 4070-A, Employee’s Daily Record of Tips.

On a monthly basis you will report the whole of tips received during a calendar month using IRS Form 4070. You will need to report them to your employer by the 10th day of the month following the month that you receive them. Should that day fall on a Saturday, Sunday, or legal holiday you must report your tips by the next day that is not any one of those days.

You are not required to report tips to your employer in the event that you do not receive at least $20 during the calendar month working for that employer. However, on the contrary, failure to report your tips can result in a 50 percent penalty of the Social Security and Medicare taxes as well as Railroad Retirement tax that are due on the unreported tips. An exception will be made if there was reasonable cause for not reporting the tips.

The employer must report at least 8 percent of total receipts

When the employer is reporting tips to the IRS, the total income from tips must be at least 8 percent of your total receipts for that time period. However, not all receipt are included, those for carry-out sales and sales that include a service charge of at least 10 percent are not counted.


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