All tips you receive are
taxable and must be reported on your tax return. Certain employers must allocate tips if the
percentage of tips reported by employees falls below a required minimum percentage of
gross sales. To "allocate tips" means to assign an additional amount as tips to
each employee for tax purposes whose reported tips are below the required percentage. These
allocated tips will be
shown in Box 8 of your Form W-2.
If you have allocated tips you may not file
Form
1040EZ or Form 1040A.
The allocated tips shown in Box 8 of your
Form W-2 are not included in Box 1 of your Form W-2. If
you do not have adequate records for your actual tips, you must include the allocated tips
shown on your Form W-2 as additional tip income on your tax return. You add it to your income
yourself by reporting it on Line 7 of Form 1040. You also have to file
Form 4137 to compute your Social
Security tax and Medicare tax.
IRS
publications about allocated tips: For more information about allocated tips see Tip Allocation in
IRS Publication 531,Reporting Tip
Income. Refer to Tax Topic 402, Tips, for other important information. For
additional information on how the rules for allocated tips work, refer to Chapter 7 of
IRS Publication 17,Your Federal
Income Tax.
Ask Julian Block your IRS and tax questions!
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call Julian for a tax consultation click
here.
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For further information regarding IRS
rules and regulations and your particular tax or IRS situation you should
consult with a Certified Public Accountant, Enrolled Agent, Attorney, or
other tax advisor.
to compute your Social
Security tax and Medicare tax.
