Issue link: https://www.massageandbodyworkdigital.com/i/1191154
Ta k e 5 a n d t r y A B M P F i v e - M i n u t e M u s c l e s a t w w w. a b m p . c o m / f i v e - m i n u t e - m u s c l e s . 73 provided by your employer, including electronic forms. Your monthly tip reports should be submitted to your employer by the 10th of the following month. For example, tips received in January should be reported by February 10. If the 10th falls on a Saturday, Sunday, or legal holiday, an employee may give the report to the employer by the next business day. Sole Proprietors Self-employment income in excess of $400 must be reported to the IRS as taxable income. Tips are considered income, so it's important to keep accurate, daily records. Similar to the requirements for employees, your records should contain sufficient proof of your tip income for the year. As with employees, a daily record of tip income is considered sufficient proof. When you are ready to calculate your income taxes on your tips, just add your tip receipts to your other self-employment income. As a rule of thumb, make it a habit to save at least 25 percent of your tips in anticipation of these income taxes. Employers If you are an employer and your employees receive taxable tips, you must receive a tip report from each employee for every payroll period. While the IRS requires tipped employees to provide this report once a month, you will need a report for every payroll period; otherwise, you cannot correctly report the employee's total wages, nor can you withhold the proper taxes. As an employer, you are then required to withhold both income taxes and FICA (social security and Medicare) taxes on the tips. You also will have to cover the employer's portion of FICA and FUTA (Federal Unemployment Tax Act) taxes. Under normal circumstances, you would withhold income taxes from the employee's regular wages. In the case of tips, though, you also have to take tip withholdings from an employee's regular wages because you never actually have the tip money in your hands. In order to comply with these IRS withholding requirements, you will: • Retain employee tip reports. • File IRS Form 941, Employer's Quarterly Federal Tax Return, each quarter. (This form is used to report wages, tips, and other compensation paid to your employees. The form also indicates whether you made tax deposits or withheld income and FICA taxes during the quarter.) • Report tips to the IRS annually, using IRS Form W-2 (Wage and Tax Statement). For more information on tips as taxable income, visit www.irs.gov and search "tip income." Lisa Bakewell is a full-time freelance writer, editor, perpetual learner, and lover of life in Chicagoland. Her areas of writing expertise span a multitude of topics that include health and wellness, travel, parenting, personal/company profiles, a plethora of "how-to" articles (her favorite!), and technology. She can be reached at lbakewell@att.net. PLEASE NOTE As an employer, you are not liable to withhold and pay the employee share of social security and Medicare taxes on the unreported tips until notice and demand for the taxes is made to the employer by the IRS.