Tips you receive for services are taxable, the Internal Revenue Service reminded taxpayers Feb. 19 in an emailed news release.
Tips go beyond bills and change given you by customers, the IRS noted, stating that "non-cash tips, such as tickets, passes or other items of value are also subject to income tax."
All tips should be reported on your federal income tax return, the IRS said, including "tips you received directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees."
Your legal responsibility in reporting tips is not limited to telling the IRS. Under federal law, you must report your tips to your employer in any month in which the value of the tips reaches $20.
"Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips," the IRS said.
The IRS provides a form to help you keep a daily log of your tips.
For complete information on taxation of tips, read IRS Publication 531.
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