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Dianne Marquard: Hello and welcome to today's webinar Tip Information for the General Audience. My name is Dianne Marquard and I am the program manager for the National Tip Reporting Compliance Program or NTRCP. NTRCP is a national program that services all employers, small and large in the tipping industry. Also presenting is NTRCP's senior analyst, Tammy Wise. Hi Tammy, thanks for joining me today. Tammy Wise: Hi, Dianne. Thanks for having me. Today we are going to talk about an important topic tip. The tipping industry has expanded greatly over the past couple of decades, the ability to tip has expanded with point of sale systems, electronic payment pads, that includes suggested tip amount and online ordering. The topic today is more relevant than ever. Dianne Marquard: I couldn't agree more. Today's discussion is all about tip. We will define tip. Explain the reporting obligation for tips under the law and provide the benefits of reporting tips. Let's get started. Tammy, what is a tip? Tammy Wise: Tips are income and subject to tax. Tips are included on your federal tax return as income. Internal Revenue Code Section 61, states gross income includes all income, from whatever source derived. It is a catch all phrase that includes tip income. Tips are subject to Social Security, Medicare and federal income tax withholding, just like your wages.

Internal Revenue Code Section 3102, 3111 and 3401 covers the tax treatment of tips. Tips come in many forms or medium of cash, such as credit cards, gift cards, as well as cash or tip outs received from other employees. A tip is additional payments on the bill from the customer. The customer decides the amount to pay. We say free from compulsion, meaning it is not negotiated or directed by the server, the manager or the outlet. The customer decides whether to pay an additional amount or to give nothing at all, which we refer to as a stiff. Pretty simple. Dianne Marquard: Let's consider an example. Sally is an employee of Best Cuts Ever salon as a stylist.

She has loyal customers that have been with her for more than two decades. Many of her customers feel like old friends. During their time in the chair getting a haircut, they often talk about their personal lives, the tips they give feel like a thank you, not a tip. Are these really tips?

Well, that's a good question and I can understand the confusion. A lot of talk can happen at the salon and we can feel a personal connection. What's the official answer Tammy? Tammy Wise: Well, there is a lot of confusion. The answer is the amount provided to Sally, it is a tip. It is an additional amount given to her by the customer without prompting or negotiating from Sally. The customer gives freely and is under no pressure or obligation to give any extra cash and ultimately decides the amount. She needs to report on her tax return. So let's go through another common question. Dianne Marquard: Dan is a tipped employee of Best Ever Casino. Dan is a valet who often gets hungry between the daily check-in registration for dinner rushes. He uses his cash tips to pay for his snacks and drinks. Since he needs the energy to work, those tips he receives that are used to pay for his snacks, really a tip? What do you think, Tammy? Tammy Wise: Well, it is still a tip, subject to taxes and reporting on the federal tax return amounts received from customer are a tip regardless of how the money is spent, but this gets me to thinking about a specific transaction that looks like a tip. Dianne Marquard: I know what you're thinking service charges, service charges are not tip, there are additional amounts that are decided by the venues policies. For instance, an automatic charge of 18% on a bill for parties of six or more, or flat banquet fee are not tips, but rather service charges. Service charges are wages, if your employer pays the amount to you. Your employer will add these amounts to your wage statement and W-2.

Tammy, how do we keep track of tips? Seems like there's a lot to remember. Tammy Wise: You're right, there is a lot to remember. By law, a tipped employee must report 100% of tips and keep that contemporaneously daily tip log of all tips received. This means each day you receive tips, you must write it down. And there are specific requirements on the type of information you must maintain. The IRS has forms to help you with this obligation. Go to and select forms and instructions at the top of the page. Search for Publication 1244 Employees Daily Record of Tips and Report to Employer or type in Form 4070A, Employees Daily Record of Tips. These forms and publications can be provided to you and your employer in bulk by request. At the end of the presentation you will find our email box address. Dianne Marquard: Before you get to showing them our amazing form. Let's talk about the requirements of a tip log. It must contain specific information enough to identify the who, when, where and how much. The log must have the general information, such as employee name and address and social security number. It also needs to include the employer name and address and identify the period or dates covered. In addition, it must have dates worked with tips received from customers and other employees, credit and debit card tips received. And tips paid out and the employee name to whom you paid the tips to. It should include the date furnished to the employer and the total amount of tips received. Tammy can you show them the IRS version of a tip log? Tammy Wise: Here is the 4070A. The form has boxes for all the required items. You must include some general information such as the name and address, employer name, the near covered. The log must include the date worked, tips received from customers and other employees, credit and debit card tips received the tips paid out with name of employee who was paid. Daily record keeping is extremely important and then required under the law.

These forms were developed to assist you with your record keeping. You can use this as a template to create your own log too. Dianne Marquard: But wait, we have another question. Let's read Star is a tipped employee of Best Ever Steakhouse. Star is a waitress and often pays the bartender a portion of her nightly tips for preparing drinks for her assigned table. Star is told to report all her tips by her employer. Star doesn't think it's fair that she reports all her tips when she gives some of her tips to other employees. Is she right Tammy? Tammy Wise: She is right. Tips paid out to other employees are reduced from Stars reportable tip income. Dianne, can you go over the obligations to report tips to the employer? Dianne Marquard: I sure can. If you regularly and routinely receive more than $20 a month in tip. You are a tipped employee. You must report all tips received in a month. By the 10th day of the following month to your employer. Your employer should have a process in place for you to do this. Sometimes it is done by paper, and sometimes it is reported at the clock. Check with your employer and their process. Through payroll, your employer will withhold the Social Security, Medicare and federal income tax. Why is this important?

Reporting to your employer helps to track and report all tips on your return. In general, it's good tax planning. Reporting tips to your employer allows you to pay your taxes throughout the year instead of having a big payment due with your tax return. For instance, if you make $100 in tips for the week, the payroll taxes due are $7.65. But if you wait until the end of the year to report all tips, there may be a large tax due bill. Large payments due on tax day can be tough on any budget, and worse may result in additional amounts due for penalties and interest. The goal is to pay only what you owe in taxes and no more. Let's look at an example of a report to the employer. Sure. Here is an example of a report to the employer. The Form 4070, Employees Report of Tips to Employer can be found on Under forms and instructions, search for either Form 4070 or Publication 1244. The form was created for your use and convenience. As you can see, the form has all the required items. Looking to the left are spaces for your name and address, and your employer's name and address. It also includes the month you receive tips over $20 and your signature. On the right side are boxes for your social security number, cash tips received, credit and debit card tips received and tips paid out. I highlighted box three and four. Box three is that separately states the tips out and box four adds tips together received in cash or in credit card charges and then subtracts the tips given out to arrive at net tip. The net tips are the taxable amount to the employee. And finally, a box for the date signed and submitted to the employer. Let's talk about why tip reporting makes a difference. Tammy Wise: Why is it so important to report your tip? Because we have all applied for loans or government benefits. And what's the first thing they want to see, your tax return and Form W-2.

That's because the amount that you are eligible to receive is based on reported income. So increased tip reporting can have other benefits not related to the IRS. Increased tip reporting increases overall income and can affect the, can affect and increase state benefits, like unemployment or disability or workers benefits like workers compensation or federal benefits like Social Security or retirement. Reporting can also make it possible to save more through a retirement account like a 401k. Most adults spend 30 to 45 years working, and it's important to get the most retirement income as possible. This is achieved through increased reporting.

Increased financial reporting can also help with purchasing a home or car as well. You can achieve better credit card, credit rating and a lender can provide increased limits and better terms making it possible to buy a bigger home or a nicer car. We have heard of example after example of employees who are disappointed to learn their eligibility amounts because they did not report all of their income and the lower benefits were not enough to live on. Dianne Marquard: Here's a slide with some resources available on I've also included the IRS Tip Program email address. If you have a question at any time, submit to this email box. Remember that all tips are taxable and must be reported on your tax return. Being a tipped employee means that there are record keeping requirements that must be completed, including keeping a detailed tip log each day worked and submitting a monthly tip report to your employer. Employers can help by teaching their employees on the procedures to report tips at the clock or in another way. They can have Publication 1244 or Form 4070 and Form 4070A handy. Employers can ensure that payroll taxes are withheld on tips regularly. Tammy and I would like to thank you for joining us today to discuss tips.