IRS Form 4070 Instructions
Tips are subjected to the federal income tax and should be properly reported regardless of the employee's wages. The employee should report cash, credit and debit card tips to their employer every month or shorter time periods. Annual tax return should contain the amount of tips received during the year in cash, via cards and in items of value, such as tickets, passes, etc. If tips are shared between employees, each of them should report only the part they received. If the employee received tips less than $20, they do not have to report them.
The employee must also report their allocated tips on their tax return. Do refer to the IRS detailed instructions on what the allocated tips are, how they are calculated and in which cases your employer is obliged to allocate tips.
The employee should report tips by the 10th day of the month following the month that the tips were received. If the 10th day of this month is a Saturday, Sunday or a legal holiday, the tips should be reported on the next business day.
If the employee does not report tips, they are subject to a penalty equal to 50% of all taxes owed on the unreported tips. However, if the employee shows a reasonable cause for not reporting tips to their employer and provides a supporting statement, they can avoid the penalty.
Additional information and instructions for completing the IRS Form 4070 can be found in the IRS Publication 531, issued in 2018.
How to Fill up Form 4070?
- 1 to 3. Self-explanatory;
- A month or a shorter period in which tips were received. Enter the dates of the beginning and end of the time period you received the reported tips;
- Item 1, Cash tips received. Enter the amount you received in tips in cash during the reported time period;
- Item 2, Credit and debit card tips received. Enter the amount of tips you received from customers credit and debit cards;
- Item 3, Tips paid out. Enter the amounts you paid to other employees;
- Item 4, Net tips. Add numbers from Items 1 and 2, subtract the number from Item 3 from this sum, enter the number you got;
- Sign and date the report.