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Filing Deadline – Reporting Tips to Employers

October 10, 2023

Employees who receive cash tips of $20 or more in a calendar month while working for you are required to report to you the total amount of tips they receive. The employees must give you written reports by the tenth day of the following month. Employees who receive tips of less than $20 in a calendar month aren’t required to report their tips to you but must report these amounts as income on their tax returns and pay taxes, if any.

Cash tips include tips received directly from customers, tips from other employees under any tip-sharing arrangement, and charged tips (for example, credit and debit card charges) that you distribute to the employee. Both directly and indirectly tipped employees must report tips received to their employer.

Service charges added to a bill or fixed by the employer that the customer must pay, when paid to an employee, won’t constitute a tip but rather constitute non-tip wages. These non-tip wages are subject to social security tax, Medicare tax, and federal income tax withholding. In addition, the employer can’t use these non-tip wages when computing the credit available to employers under section 45B of the Internal Revenue Code because these amounts aren’t tips. Common examples of service charges (sometimes called auto-gratuities) in service industries are:

  • Large party charge (restaurant),
  • Bottle service charge (restaurant and night-club),
  • Room service charge (hotel and resort),
  • Contracted luggage assistance charge (hotel and resort), and
  • Mandated delivery charge (pizza or other retail deliveries).
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October 10, 2023
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