What if you work somewhere where you get tips? You have to tell the IRS about them and pay taxes on them.
Taxes and the Tips You Make
Tips are handled very simply by the Internal Revenue Service. It considers all tips you get at work to be taxable income that you must report and pay taxes on. In other words, the IRS's view of taxes is simple but harsh.
Now, there are different kinds of tips. Some come straight from customers, while others are added to their bills automatically. The IRS says you have to report both amounts and pay taxes on them. This also includes any taxes you pay on tips you get as part of a group split, where everyone's tips are added up and then split among the workers. On top of that, the IRS thinks that tips that aren't cash, like tickets to an event, are also income that needs to be reported and taxed. In other words, the Internal Revenue Service knows where you are and where you are going.
The Internal Revenue Service makes things tougher by making you take some steps when you report tips. If you get $20 or more in tips from a single job in a given month, you have to tell your boss about it by the 10th of the following month. The employer is then supposed to take out federal income tax, social security, and Medicare taxes from your paycheck. Keep in mind that if you don't do this, you could get a 50% penalty added to your taxes. It's clear that the IRS is pretty determined to get its money.
The IRS has always been interested in tips given to waitresses, bartenders, barbacks, etc. Since most tips are given in cash, it's easy to forget to report them. The IRS seems to agree with this, and they have been pretty aggressive about it. If you say on your tax return that you are a waitress or bartender but don't report any tips, you could be audited.
