Tip Reporting

What is tip reporting?

Tip reporting is the process by which tipped employees report their tips to employers and employers report those tips for tax purposes. Employees must report tips of $20 or more per month to their employer by the 10th of the following month. Employers include reported tips on W-2s and withhold income and FICA taxes on those amounts.

Employer reporting obligations

Add reported tips to wages for tax withholding purposes. If tips are insufficient to cover tax withholding, collect the shortage from other wages or from the employee. Report tips on Form 941 quarterly. Large food and beverage establishments with more than 10 employees must also file Form 8027 annually reporting total sales and tips.

Handling unreported tips

Employees are responsible for reporting all tips. If you suspect under-reporting, you cannot force employees to report more. However, significant discrepancies between reported tips and expected amounts based on sales may trigger IRS scrutiny. Some employers use tip rate determination agreements or tip compliance programs to establish safe harbor reporting levels.