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Tips you receive from customers are generally subject to withholding. Employees are required to claim all tip income received. This includes tips your employer paid over to you for charge customers and tips you received directly from customers.
Reporting your tip income correctly is not difficult. You must do three things.--Keep a daily tip record.--Report tips to your employer.--Report all your tips on your income tax return.
There are two ways to keep a daily tip record. You can either:--Write information about your tips in a tip diary, or--Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips.
You should keep your daily tip record with your tax or other personal records.
We may not say that you are "under a tip compliance" if you either do not keep record of your tips or if you did not report the full tip amount on your tax return.In this case - you woudl need to (1) re-establish your tip records and (2) amend your past tax returns to add tip income if it was not reported to your employer.
How to report tips?
Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; Form 1040EZ, line 1 - depending which from you are using.
Any tips you reported to your employer as required are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.
Let me know if you need help to amend the tax return you already filed.
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