Greater Omaha Economic Development Partnership
Greater Omaha Economic Development Partnership
Tools Home  
Government Requirements
Reporting Tip Income Go to topics
Employment taxes must be paid on employee tips. The IRS requires employees to report their tip income to their employer at least monthly. This income must be added to the wages paid by the employer for employment tax purposes. 
Forms to use Daily Tips Form
What to do: employees   Employees should keep a record of their tips. Employees may request a booklet from the IRS or they can use the copy included here. Preferably every pay period, but at a minimum, once a month, the employee should provide the totals to the employer (see page 2 of attachment).
What to do: employers   Add the reported tips to the employee's normal wages and calculate taxes accordingly. You may not require the employee to give you their tips in cash. This is strictly a reporting requirement. Both the employee and the employer must pay employment taxes on these tips.
Report at least 8% of receipts   Employees must report at least 8% of the business' receipts as tips. If they report less, at year-end the employer must allocate any shortage to the employees.
At year-end: unreported tips  Employers must report the total wages and reported tips on the employee's W-2 form. If there is a shortage from the required 8% and tips must be allocated, the allocated tips must be shown on line 8 of W-2. Employees must pay social security taxes on any allocated tips using IRS form 4137.
Tip income not used to calculate minimum wage   Tips may not be included in determining whether an employee has been paid minimum wage unless the state has specifically authorized this.
Questions?  Call the IRS information hotline (800) 829-4933. For booklets, call (800) 829-3676 or obtain it online, visit