3 Steps to Reporting Tips for Servers
August 2 2019
You know the feeling. If you’re a server, a bartender, a delivery driver, or any other kind of worker who makes a fair deal of their income off tips, you know just how wonderful it can feel to get a nice tip. Whether that’s a $20 bill for a pizza delivery or a 30% tip, a great tip can turn a shift from only okay to excellent. Then, it’s time to get to reporting tips.
Regardless whether your tips have been great or not so great on any given day, the tricky thing about them is the taxes. Most tipped workers earn a base rate with tips on top, credit and cash, and that can turn into some serious question marks once tax time rolls around.
If you’re just getting started in the service industry or another tipped position, you need to go in with a clear understanding of what to keep track of. Trust us, the last thing you want is a rude surprise that you owe the IRS money when you file your tax return! (Though to this date, we’ve yet to meet a client who is happy to find out they owe the IRS on their taxes.)
We’re going to cover the four steps (and a few extra tips) you need to compete as a tipped worker to make sure you stay above board with the IRS.
3 Steps to Reporting Tips on Your Taxes
For a first-timer to the tipped wage game, cracking the code of income taxes can seem a little complicated, but it’s a lot easier than you may think at first. Simply follow a few steps, and your tax return is sure to be accepted by the IRS without a hitch.
1. Keeping a Daily Tip Record
The first step to handling your tipped wages like a pro is to keep and maintain a daily tip record. Use a notebook or a spreadsheet; any method that allows you to keep track of the dates you work and tips you receive will work just fine.
Keep special track of:
- Cash vs. Credit Tips: In your record, denote the tips you receive in cash vs. the debit or credit card tips you receive.
- Pooled Tips: Your net tips are what you need to report. So if you make $50 in tips and have to share $10 with other FOH staff, your net tips for your shift will be $40.
- Service Charges: Charges for things like deliveries, auto-gratuities on large parties, and bottle service charges are all typically not considered as tips, but rather, regular wages. Find out from your employer if they’ll be added to your paycheck or not.
2. Reporting Tips to Your Employer
When you’re a tipped employee, you have a little bit extra work to do at the end of each month. Specifically, you’re going to have to report your tipped wages to your employer.
You’ll need to report your tips to your employer by the 10th of the month following the month you received the tips, assuming you made more than $20. So, you’ll need to report your tips for October by November 10, and you’ll need to report your March tips by April 10.
The IRS requires you sign and submit a statement with the following:
- Employee’s name, address, and social security number
- Employer’s name and address (establishment name if different)
- Month or period the report covers
- Total of tips received during the month or period
The exact form you use to report those tips may depend. Often times, employers will provide their own forms, but you can also use Form 4070, Employee’s Report of Tips to Employer. You won’t include service charges in your daily tip record because they’re typically added directly onto a bill.
3. Reporting Tips on Your Tax Return
The last step to filing an error-free tax return when you’re a tipped employee is to report your tips to the IRS. This final step will be pretty easy assuming you’ve kept a thorough record throughout the year.
If you have any tips you haven’t already reported to your employer, you’ll need to use Form 4137 to crunch the numbers for social security and Medicare taxes you owe. It’s a good idea to save some of your income in case you have a surprise tax bill; if your hourly wages don’t cover the taxes you owe on tips, you might get hit with a bill in April.
The Best Tips You Can Get
For servers, bartenders, or delivery drivers, dealing with taxes can seem extra confusing the first couple times around. But don’t hesitate to ask your employer or your fellow workers questions if they seem open to them.
We’re also here for any—and every—question about filing your tax return that you can possibly come up with. You work hard, and you deserve to have the best information possible during tax season. Hustle on and happy tipping to you!
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