Tax on Tips

You DO have to pay tax on tips reported to your employer.

If you don’t report your cash tips to your employer, you risk the chance at being audited by the IRS. If the company does not meet certain criteria (typically 8% of sales and beverages sales should be reported as tips) then it makes it more likely for all employees will receive a tip audit.

The allocated tips is the difference between the tips reported and that 8%. Meaning the allocated tips will be divided among employees and if your reported tips seem short, you’ll be audited.