Reporting tips to your employer

Card tips are visible to your employer the moment they are charged. Cash tips are visible to nobody but you — and there is a specific rule about handing that number over. Here is the mechanic, in the order it actually happens.

The $20 rule

If you receive $20 or more in tips in a calendar month at one job, you are required to report that month's tips to your employer in writing. The threshold is tested per employer, so if you work two restaurants you test each one on its own. Below $20 in a month at a job, the report is not required — but the income is still taxable and still belongs on your return.

The deadline

The report is due by the 10th day of the following month, moving to the next business day if the 10th is a weekend or holiday. In practice most restaurants collect tips shift by shift through the POS, so the monthly report is really a running total the system builds for you. If yours does not, the deadline is yours to keep.

What goes in the report

The requirement is a written statement, signed, containing:

• Your name, address, and Social Security number.
• Your employer's name and address.
• The period the report covers.
• The total tips received in that period.

Form 4070 is the IRS's template for exactly that statement, and Form 4070A is the daily log meant to feed it. Neither is mandatory — any written statement with the items above satisfies the rule, which is why POS-generated tip declarations are the norm now. What is not optional is having some record behind the number.

What counts toward the total

• Cash tips you kept.
• Charged tips your employer paid out to you.
• Your net share of a tip pool or tip split — what you received from the pool, or what you kept after tipping out. Tips you passed to other employees are reported by them, not by you.

That last line is why an accurate tip-out record matters twice: it changes what you take home and it changes what you report.

What your employer does with it

Your employer withholds income tax and FICA on the tips you report, usually out of your regular wages, and includes them on your W-2. That is the whole point of the exercise: reported tips get taxed as you go, at a few dollars a paycheck, instead of arriving as one bill in April.

If your wages are too small to cover the withholding on a big cash month — common when the cash wage is $2.13 — your employer applies what it can and the rest is settled at filing.

Tips you never reported

Unreported tips do not disappear. You report them at filing on Form 4137 and pay the Social Security and Medicare that was never withheld. The IRS can also add a penalty of 50% of that FICA for tips that should have been reported monthly, absent reasonable cause. And there is a quieter cost: unreported tips do not count toward your Social Security earnings record, and they do not exist on paper when a landlord or a lender asks what you make.

The habit that makes this a non-event

Every requirement on this page is trivial if you have a daily record and painful if you do not. Log the shift when you clock out — cash, card, hours, tip-out — and the monthly number is already computed, the year-end export is already written, and Box 8 on your W-2 has something to be checked against. That is the 30-second habit, and it is what Tipfolio automates.

General information, not tax advice. Thresholds, forms, and penalties change — verify current requirements with the IRS or a tax professional.