Regardless of whether most of your income comes from tips, all tips or gratuities you receive while on the job are considered to be taxable income. Even non-cash gifts, such as tickets to sporting events, must be declared to the IRS, as they are subject to federal income tax.
If you receive $20 or more in tip income in one calendar month, you are legally required to report it to your employer, who must then withhold Social Security and Medicare taxes. If you receive less than $20, you don’t have to inform your employer, but you do need to report the income on your federal tax return.
For further questions about Phoenix personal income tax accounting, please contact Singer Tax & Accounting, PC today at (602) 482-8006.