Do I have to pay tax on allocated tips?

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.

Related tax information about allocated tips

Tax Directory Topics:
Income Related Questions and Answers

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. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
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