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13130: 1040 - Reporting Tip Income


1040 Individual Generally

Does a taxpayer have to report tips on a tax return?  In data entry do I have to enter the amounts shown in boxes 7 and 8 of the W-2?

 IRS advises taxpayers:

What tips to report. Generally, you must report all tips you received in 2018 on your tax return, including both cash tips and noncash tips. Any tips you reported to your employer as required in 2018 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.

However, any tips you received in 2018 that you reported to your employer as required after 2018 but before January 11, 2019, are not included in the wages shown in box 1 of your 2018 Form W-2. Do not include the amount of these tips on your 2018 tax return. Instead, include them on your 2019 tax return. Tips you received in 2017 that you reported to your employer as required after 2017 but before January 11, 2018, are included in the wages shown in box 1 of your 2018 Form W-2. Although these tips were received in 2017, you must report them on your 2018 tax return.

If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report on your income tax return any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees.

Pub. 531 Reporting Tip Income. The taxpayer may find useful Pub. 3148, Tips on Tips, a Guide to Tip Income Reporting.

Form W2

 See the General Instructions for Forms W-2 and W-3.

Box 1. Tips reported to the taxpayer's employer as required are included in the wages shown in box 1 of the taxpayer's W-2, except for tips the taxpayer received in the current tax year and reported to the employer after the current year but before January 11 of the following year. These are reported on the taxpayer's return in the following year.

Box 7. Box 7 records all the tips the taxpayer received and reported to the employer during the tax year. When the taxpayer reports tips to the employer, they are added up and included in box 7. Tips reported in box 7 are also included in box 5 (Medicare wages and tips).

The taxpayer's employer is required to withhold federal income taxes, social security and Medicare taxes, and perhaps state income tax.

Tip reporting may increase the taxpayer's social security credits, resulting in greater social security and Medicare retirement benefits.

Box 8.  Allocated tips are reported in box 8. Generally, this box is used by large food or beverage establishments. Amounts reported in box 8 are not included in boxes 1, 3, 5, or 7.

Allocated tips are those assigned to the taxpayer by the employer in addition to those the taxpayer reported to the employer for the year.

Amounts entered in box 8 of the W2 screen flow to Form 4137, Social Security and Medicare Tax on Unreported Income, because social security, Medicare, or Additional Medicare taxes are not withheld from allocated tips.

Form 4137, Social Security And Medicare Tax On Unreported Tip Income

Form 4137 is used to figure and report the social security and Medicare tax owed on tips the taxpayer did not report to the employer, including any allocated tips shown on the taxpayer's W-2 that must be reported as income.  By filing this form (screen 4137), social security and Medicare tips will be credited to the taxpayer's social security record, which is used to figure benefits. See Form 4137 and instructions.  

Form 8919, Uncollected Social Security And Medicare Tax On Wages

Form 8919 is used to figure and report the taxpayer's share of uncollected social security and Medicare taxes due on compensation if the taxpayer was an employee but treated as an independent contractor by the employer. By filing this form (screen 8919), social security and Medicare tips will be credited to the taxpayer's social security record. See Form 8919 and instructions.

Publication 1244, Employee’s Daily Record Of Tips And Report To Employer

Forms 4070 and 4070A are part of Publication 1244. They help the taxpayer keep track of tips for reporting purposes. Form 4070 is the employee’s report of tips to the employer. Form 4070A is an employee’s daily record of tips. See Publication 1244.

Form 8027, Employer’s Annual Information Return Of Tip Income And Allocated Tips

Form 8027 is used by large food or beverage establishments when the employer is required to make annual reports to the IRS on receipts from food or beverage operations and tips reported by employees. See the Instructions for Form 8027.

Note: Starting in Drake16, Form 8027 is not available in the Drake Tax.


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