- 1). Keep a record of your daily tips. You should keep a record of your daily tips on a Form 4070A. You can get a supply of these forms by getting Publication 1244 from the IRS (see Resources).
- 2). Report your tips to your employer. You must report your tips to your employer for any month where you earn more than $20 in tips. You can use a Form 4070 to report your tips. You can find a supply of Form 1040s in Publication 1244 from the IRS. Your employer may have his own system for reporting tips, which is acceptable as long as you report your total tips, Social Security number, address and employer's name and address.
- 3). Report your tips along with your wages on line 7 of Form 1040 of your tax return. If you have reported all of your tips to your employer, simply input the amount shown in box 1 of your W-2 form. If you have received allocated tips, you should add the amount of box 8 to the amount of box 1 on your W-2 form before inputting it on your Form 1040. If you have not reported your tips to your employer, or if you received non-monetary tips, you must add the amount of your unreported tips to the amount shown in box 1 of your W-2 form. If you are using a specialized 1040 form, the line on which you should enter your wages will differ: line 1 for a 1040EZ, line 8 for a 1040NR or line 3 for a 1040NR-EZ.
- 4). Report your tips for Social Security and Medicare taxes. This step is necessary only if you received more than $20 in tips for a month that you have not reported to your employer or if you have received allocated tips. If either situation applies to you, you must use Form 4137 -- Social Security and Medicare Tax on Unreported Tip Income (see Resources) to calculate the tax you owe. Fill in the form as instructed and attach it to your tax return.
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