TAXABLE TIP INCOME
If you receive tips on the job from customers, you must include those tips in the computation of your tax liability, if any. This includes tips, directly from customers, tips added to credit cards, and your share of tips received under a tip-splitting agreement with other employees. The method for paying out charge tips is determined by the employer. Charge tips can be distributed daily or accumulated and paid through regular payroll. The value of noncash tips, such as tickets, passes, or other items of value, are also subject to income tax.
If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, and debit and credit card tips you receive. Your employer is required to withhold federal income, social security, and Medicare taxes on the reported tips. You are not required to report the value of any noncash tips to your employer, but they are taxable.