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Tipping concepts

Reported Tips

Also called: tip reporting

Tip income you formally report to your employer (via daily tip sheet or IRS Form 4070) — the basis for FICA withholding and Box 7 of your W-2.

Reported tips are tips you formally declare to your employer. Federal law (IRC § 6053) requires employees who receive $20 or more in tips in any month from a single employer to report the total to that employer by the 10th of the following month.

Reporting methods:

  • Daily tip sheet at the end of shift (most restaurants)
  • IRS Form 4070 (Employee's Report of Tips to Employer)
  • Any equivalent log the employer accepts

What gets reported:

  • All cash tips
  • All credit card / charged tips (usually auto-captured)
  • Tips received in a tip pool or from a tip-out (the net amount kept)
  • Non-cash tips (concert tickets, etc.) — for income tax purposes only, not FICA

Once reported, the employer withholds FICA on the amount and includes it in Box 7 (Social Security tips) and Box 1 (taxable wages) of your year-end W-2.

If you under-report and the establishment falls below 8% of gross sales in total tips, the IRS triggers tip allocation, which puts a number in Box 8 that you owe FICA on via Form 4137.