Tip Reporting Policy

Purpose

Employees who receive tips from customers are required to report this income on their tax returns and must report to [Company name] each month any tips received totaling $20 or more.

Tips are defined by the IRS as:

• Cash tips received directly from customers.
• Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card or any other electronic payment method.
• Tip amounts received from other employees paid out through tip pools, tip splitting or other formal/informal tip sharing arrangements.
  

The value of any noncash tips, such as tickets or other items of value, must be reported as income on the employee's tax return but do not have to be reported to the employer.

Employee Reporting

Tipped employees must keep a daily record of all tips received on IRS Form 4070A and report monthly tips on Form 4070 to [Company name] no later than the 10th day of the following month. For example, tips received in January 2021 must be reported to [Company name] no later than Feb. 10, 2021.

Both Form 4070A and Form 4070 can be found in IRS Publication 1244.

Exclusions

Employees do not need to report to [Company name] the following:

• Tips from any month that do not total at least $20.
• Noncash tips, such as tickets or other items of value.
  
• Service charges added to a customer's check by the employer.

Tax Withholding

[Company name] will withhold income taxes and the employee's share of Social Security tax and Medicare tax based on the wages and tips reported by the employee. Reported tips will be included as wages in Box 1 of the employee's W-2 as taxable income.