Employer Responsiblities
for Employee Tip Reporting

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As employers, the IRS does task you with certain responsibilities for reporting cash tips of your employees:

  1. Employers must collect income tax, employee social security tax and employee Medicare tax on tips reported by employees. You can collect these taxes from an employee's wages or from other funds he or she makes available.
  2. As an employer, you must ensure that the total tip income reported to you during any pay period is, at a minimum, equal to 8% of your total receipts for that period. When the total reported to you is less than 8%, you must allocate the difference between the actual tip income reported and 8% of gross receipts

The responsibility for reporting tips is shared with your employees. Employees must report tip income on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. This report is due at the latest on the 10th day of the month after the month the tips are received. This statement must be signed by the employee and must show the following:

  • The employee's name, address, and SSN
  • Your name and address
  • The month or period the report covers
  • The total tips received

No report is required from an employee for months when tips are less than $20.

Some practical ideas for an employer to meet its responsibilities may include:

  • Educate your employees about their tip reporting responsibilities
  • Give them a paper or pdf copy of Form 4070A: http://www.irs.gov/pub/irs-pdf/p1244.pdf
  • Set a due date and specifically ask each employee for their tip record. You can set deadlines for each payperiod, e.g. tip records are due 2 days after the end of each payperiod.
  • Keep a copy of each submitted tip record and keep a log that shows when employee submits a tip record. You can even post this log in your office so that the employees can see you are keeping track.

For more information about reporting tips, please visit:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Reporting-Tip-Income---Restaurant-Tax-Tips

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