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As you well know, tips are extra payments that customers give to the employees who serve them. Among them are cash tips that are received directly from customers, tips that are given with electronic card payments or it can also be any object of value that is not money, such as tickets to an event.
They also count as tips those that kitchen workers receive when the waiters distribute them among all the restaurant workers.
If you thought that you could keep this money without paying any taxes, you should know that this is not the case, since the IRS says that all tips in cash and in kind received by employees are considered income and are taxable federal income tax.
All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer, according to the IRS.
If the total tips received by the employee during a single calendar month from a single employer is less than $ 20, then these tips do not need to be reported and there is no need to withhold tax.
Cash tips include tips received from customers, tips collected with credit and debit cards, and those distributed to all workers when collected by some employees.
That is why all employees who receive tips must keep a record of the tips and inform the employer of everything received.
To report the amount of money received in the form of tips, you do not need a special document, it can be any paper where you include your signature, name, address and Social Security number, month and period that the tip report covers and the total money you got.
The IRS says that employees must report their tips to the employer by the 10th of the month after the month the tips were received. For example, tips received by an employee in August 2021 must be reported to the employer on or before September 10, 2021.
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