Effective Dates: 10/19/2023 - Present Previous | Next

TN 31 (10-23)

RS 01402.280 Tips - General

CITATIONS:

Act, Secs. 209(a)(10)(A) & (B);
20 CFR 404.1058(h)

A. Policy

1. Before January 1, 1966

Tips or other gratuities paid directly to the employee by a customer of the employer and kept by the employee are wages if accounted for by the employee to the employer as required by the employer.

2. Beginning January 1, 1966

Cash tips received by an employee in the course of employment by any one employer are wages if the tips total $20 or more in a calendar month.

3. Rules for Reporting Tips

a. General

All tips which qualify as wages must be reported to either the employer or to the IRS on the Federal income tax return. Failure to do so may result in a penalty imposed by the IRS.

b. Credit Card Tips

  • •

    Before January 1, 1979, the employee reported credit card tips to the employer.

  • •

    Beginning January 1, 1979, the employee reports these tips directly to the IRS.

4. When Tips are Considered Paid

  1. a. 

    Tips included in the employee's written report to the employer within the required time period are deemed paid at the time the employer received the report.

  2. b. 

    Tips not included in a written statement furnished to the employer within the prescribed time are deemed to have been paid at the time such income was received by the employee.

5. Tips and Wages Below the Minimum Wage

A FICA tax liability is incurred by employers of employees who receive tips and whose wages (exclusive of tips) are less than the minimum wage. This change is effective with wages paid after December 31, 1977.

6. Allocated Tip Income

a. General

For social security purposes, allocated tips do not count as wages or income unless the employee reports the allocated tips as additional income to the IRS.

b. Allocated Tip Income

Beginning January 1, 1983, food or beverage establishments with 10 or more employees must allocate tip income if the total amount of tips reported by all tipped employees is less than 8 percent of total sales. The amount allocated is the difference between 8 percent of total sales and the amount of tips reported. Employers are required to report tips allocated to employees on the Form W-2. No taxes are withheld by the employer.

c. Reporting Allocated Tips

Employees must report the allocated tip amount as additional income on the Form 1040 unless the employee has records to show that the allocated tip amount was not received.

If the employee includes allocated tip income on Form 1040, the employee pays their portion of the FICA taxes by completing Form 4137 (Social Security and Medicare Tax on Unreported Tip Income), and filing it with Form 1040. IRS reports the additional income to SSA for crediting to the employee's earnings record.

B. Definitions

1. Cash Tips

Cash tips may be received in two ways:

  • •

    Directly, from an individual; or

  • •

    Indirectly, i.e., a customer designates a tip amount on a credit card.

2. Non-Cash Tips

Non-cash tips include but are not limited to passes, tickets or other goods.

3. Tip Wages

Tips are wages even if the employee receives no regular salary; provided the provisions in RS 01402.280A are met.

4. Tips Distinguished From Service Charge

A service charge usually represents a percentage of the regular charge. When paid to the employee it is to be treated as any other cash wages.

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0301402280
RS 01402.280 - Tips - General - 10/19/2023
Batch run: 10/19/2023
Rev:10/19/2023