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If you work in the service industry for an employer, customers may tip you with extra money on top of your regular pay. IRS Form 4070 is a daily tip log that can help you keep track of your tips. Here’s what you need to know about reporting your tips on your tax return.
So, what is Form 4070?
IRS Form 4070 (Employee's Report of Tips to Employer) is a daily log for you to track your tips so you can report the daily total to your employer.
What kind of tips must you report?
- Cash tips given directly to you by customers, pooled house tips shared amongst your fellow staff
- Debit and credit card tips
- Non-monetary tips such as tickets to a show
Reporting your tips is required. You should use Form 4070 to keep a daily log of what you receive.
How much to report to your employer
On your tax return, you’ll need to report all tips as income, including cash, debit or credit card tips, your share of a tip pool, and non-cash items like tickets to movies or events. You must pay Social Security and Medicare taxes on your tax return.
If you earn more than $20 in cash and non-cash tips each month, you must report all your tips to your employer for the month. Your employer generally tracks all your charged tips, but you should include them in your daily tip log (Form 4070) to be sure all your tips are reported. Give your employer a copy of your Form 4070 to verify both your records and their records are complete.
Total tips of less than $20 in a month are not subject to Social Security or Medicare taxes. Tips you report along with your regular wages are included on your W-2, in Box 1.
Unreported tips and what happens if you don’t report your tips to the IRS
If you don’t report your tips, you can be penalized when the IRS does a tip audit for your employer. The IRS will determine the amount of tips you should’ve paid taxes on, and your tax bill will also include a penalty and interest. In addition, you may see allocated (to divide and distribute something for a particular purpose) tips on your future W-2. This is an amount based on the IRS tip audit of your employer and you must pay income taxes and Medicare and Social Security taxes on these tips unless you can show your tip logs proving you have claimed all your tips.
Check with your Tax Pro to see if you are eligible for the special allocated tip rules.
How to file Form 4070
You must report tips with your regular wages on your tax return. Report your tips to your employer on Form 4070 or your own daily tip log. If you are not using Form 4070, you’ll need to include the following on your daily log:
- Your legal name, permanent address and Social Security number
- Your employer’s official name and address
- Dates your tips were received
- Gross income from tips
- Tips reported to your employer
- Your employer’s phone number
Once you fill out Form 4070, give it to your employer. From there, your employer is required to include the income on your W-2.
Reporting tips for the self-employed
If you are self-employed, you must include tips in the gross income for your business. You can deduct your business expenses when you are self-employed.
How to report tip income on taxes if you’re self-employed
Include all tips received as income on your Schedule C.
Finally, be honest when you report your tips. If you are filing your income yourself, ensure that all the information you provide is as accurate as possible. Keep and provide your tip income to your employer and the IRS.
Not sure how to file your taxes, need help, or have questions? Call your local Tax Pro today to find out.