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Why You Should Report Tips Properly
By: Richard Quarterman
Tip reporting is now an enforcement priority of the IRS, so both businesses and individuals alike should take extra care to ensure that tips are reported properly.
All tips are taxable income. Employees must keep a daily record of them, and if they total more than $20 monthly, they must be reported to the employer.
Key: Fully reporting tips provides numerous benefits to employees - including a better credit rating when seeking a loan, higher jobless and worker's compensation benefits, and larger Social Security benefits.
Employers can greatly reduce their audit risk by voluntarily entering into an agreement with the IRS to educate employees about tip reporting and organizing record keeping. Ask your tax professional about entering such a risk-reducing tip rate determination agreement with the IRS or establishing a tip reporting alternative commitment (your employees agree to participate in your tip reporting education program).
