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H&rblock Taxes

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H&rblock Taxes

H&rblock taxes 6. H&rblock taxes   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. H&rblock taxes Reporting Tips to Your EmployerElectronic tip statement. H&rblock taxes Final report. H&rblock taxes Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. H&rblock taxes All tips you receive are income and are subject to federal income tax. H&rblock taxes You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. H&rblock taxes The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. H&rblock taxes Reporting your tip income correctly is not difficult. H&rblock taxes You must do three things. H&rblock taxes Keep a daily tip record. H&rblock taxes Report tips to your employer. H&rblock taxes Report all your tips on your income tax return. H&rblock taxes  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. H&rblock taxes This chapter will also show you how to treat allocated tips. H&rblock taxes For information on special tip programs and agreements, see Publication 531. H&rblock taxes Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. H&rblock taxes   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. H&rblock taxes How to keep a daily tip record. H&rblock taxes   There are two ways to keep a daily tip record. H&rblock taxes 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. H&rblock taxes You should keep your daily tip record with your tax or other personal records. H&rblock taxes You must keep your records for as long as they are important for administration of the federal tax law. H&rblock taxes For information on how long to keep records, see How long to keep records in chapter 1. H&rblock taxes    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. H&rblock taxes To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. H&rblock taxes Also, Publication 1244 is available online at www. H&rblock taxes irs. H&rblock taxes gov/pub/irs-pdf/p1244. H&rblock taxes pdf. H&rblock taxes Publication 1244 includes a 1-year supply of Form 4070A. H&rblock taxes Each day, write in the information asked for on the form. H&rblock taxes   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. H&rblock taxes Although you do not report these tips to your employer, you must report them on your tax return. H&rblock taxes   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). H&rblock taxes Then, each workday, write the date and the following information. H&rblock taxes Cash tips you get directly from customers or from other employees. H&rblock taxes Tips from credit and debit card charge customers that your employer pays you. H&rblock taxes The value of any noncash tips you get, such as tickets, passes, or other items of value. H&rblock taxes The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. H&rblock taxes Electronic tip record. H&rblock taxes   You can use an electronic system provided by your employer to record your daily tips. H&rblock taxes If you do, you must receive and keep a paper copy of this record. H&rblock taxes Service charges. H&rblock taxes    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. H&rblock taxes This is part of your wages, not a tip. H&rblock taxes See examples below. H&rblock taxes Example 1. H&rblock taxes Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. H&rblock taxes Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. H&rblock taxes Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. H&rblock taxes Do not include the 18% charge in your tip diary. H&rblock taxes Service charges that are paid to you are considered wages, not tips. H&rblock taxes Example 2. H&rblock taxes Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. H&rblock taxes David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. H&rblock taxes Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. H&rblock taxes Be sure to include this amount in your tip diary. H&rblock taxes Reporting Tips to Your Employer Why report tips to your employer. H&rblock taxes   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). H&rblock taxes What tips to report. H&rblock taxes   Report to your employer only cash, check, and debit and credit card tips you receive. H&rblock taxes   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. H&rblock taxes   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. H&rblock taxes Do not report to your employer any portion of the tips you receive that you pass on to other employees. H&rblock taxes However, you must report tips you receive from other employees. H&rblock taxes    Do not report the value of any noncash tips, such as tickets or passes, to your employer. H&rblock taxes You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. H&rblock taxes How to report. H&rblock taxes    If your employer does not give you any other way to report tips, you can use Form 4070. H&rblock taxes Fill in the information asked for on the form, sign and date the form, and give it to your employer. H&rblock taxes To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. H&rblock taxes   If you do not use Form 4070, give your employer a statement with the following information. H&rblock taxes Your name, address, and social security number. H&rblock taxes Your employer's name, address, and business name (if it is different from your employer's name). H&rblock taxes The month (or the dates of any shorter period) in which you received tips. H&rblock taxes The total tips required to be reported for that period. H&rblock taxes You must sign and date the statement. H&rblock taxes Be sure to keep a copy with your tax or other personal records. H&rblock taxes   Your employer may require you to report your tips more than once a month. H&rblock taxes However, the statement cannot cover a period of more than 1 calendar month. H&rblock taxes Electronic tip statement. H&rblock taxes   Your employer can have you furnish your tip statements electronically. H&rblock taxes When to report. H&rblock taxes   Give your report for each month to your employer by the 10th of the next month. H&rblock taxes If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. H&rblock taxes Example. H&rblock taxes You must report your tips received in September 2014 by October 10, 2014. H&rblock taxes Final report. H&rblock taxes   If your employment ends during the month, you can report your tips when your employment ends. H&rblock taxes Penalty for not reporting tips. H&rblock taxes   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. H&rblock taxes (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. H&rblock taxes ) The penalty amount is in addition to the taxes you owe. H&rblock taxes   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. H&rblock taxes To do so, attach a statement to your return explaining why you did not report them. H&rblock taxes Giving your employer money for taxes. H&rblock taxes   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. H&rblock taxes If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. H&rblock taxes   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. H&rblock taxes All taxes on your regular pay. H&rblock taxes Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. H&rblock taxes Federal, state, and local income taxes on your reported tips. H&rblock taxes    Any taxes that remain unpaid can be collected by your employer from your next paycheck. H&rblock taxes If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. H&rblock taxes See Publication 505, Tax Withholding and Estimated Tax, for more information. H&rblock taxes    Uncollected taxes. H&rblock taxes You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. H&rblock taxes These uncollected taxes will be shown on your 2013 Form W-2. H&rblock taxes See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. H&rblock taxes Reporting Tips on Your Tax Return How to report tips. H&rblock taxes    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. H&rblock taxes What tips to report. H&rblock taxes   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. H&rblock taxes Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. H&rblock taxes Add to the amount in box 1 only the tips you did not report to your employer. H&rblock taxes    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. H&rblock taxes    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. H&rblock taxes   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. H&rblock taxes Cash and charge tips you received that totaled less than $20 for any month. H&rblock taxes The value of noncash tips, such as tickets, passes, or other items of value. H&rblock taxes Example. H&rblock taxes Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. H&rblock taxes Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. H&rblock taxes He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. H&rblock taxes Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. H&rblock taxes He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. H&rblock taxes Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. H&rblock taxes    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. H&rblock taxes To report these taxes, you must file a return even if you would not otherwise have to file. H&rblock taxes You must use Form 1040. H&rblock taxes (You cannot file Form 1040EZ or Form 1040A. H&rblock taxes )    Use Form 4137 to figure social security and Medicare taxes. H&rblock taxes Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. H&rblock taxes Use Form 8959 to figure Additional Medicare Tax. H&rblock taxes    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. H&rblock taxes To get railroad retirement credit, you must report tips to your employer. H&rblock taxes Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. H&rblock taxes   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. H&rblock taxes For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. H&rblock taxes   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). H&rblock taxes You must report these amounts as additional tax on your return. H&rblock taxes Unlike the uncollected portion of the regular (1. H&rblock taxes 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. H&rblock taxes    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. H&rblock taxes You must report these taxes on Form 1040, line 60. H&rblock taxes See the instructions for Form 1040, line 60. H&rblock taxes (You cannot file Form 1040EZ or Form 1040A. H&rblock taxes ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. H&rblock taxes They are not included in box 1 with your wages and reported tips. H&rblock taxes If box 8 is blank, this discussion does not apply to you. H&rblock taxes What are allocated tips. H&rblock taxes   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. H&rblock taxes Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. H&rblock taxes No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. H&rblock taxes How were your allocated tips figured. H&rblock taxes   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). H&rblock taxes Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. H&rblock taxes For information about the exact allocation method used, ask your employer. H&rblock taxes Must you report your allocated tips on your tax return. H&rblock taxes   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. H&rblock taxes Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. H&rblock taxes Add to the amount in box 1 only the tips you did not report to your employer. H&rblock taxes This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. H&rblock taxes   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. H&rblock taxes How to report allocated tips. H&rblock taxes   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. H&rblock taxes (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. H&rblock taxes )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. H&rblock taxes Complete Form 4137, and include the allocated tips on line 1 of the form. H&rblock taxes See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. H&rblock taxes Prev  Up  Next   Home   More Online Publications
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The H&rblock Taxes

H&rblock taxes 1. H&rblock taxes   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). H&rblock taxes These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). H&rblock taxes In addition, the following are subject to the tax on unrelated business income. H&rblock taxes Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). H&rblock taxes State and municipal colleges and universities. H&rblock taxes Qualified state tuition programs. H&rblock taxes Medical savings accounts (MSAs) described in section 220(d). H&rblock taxes Coverdell savings accounts described in section 530. H&rblock taxes U. H&rblock taxes S. H&rblock taxes instrumentalities. H&rblock taxes   A corporation that is a U. H&rblock taxes S. H&rblock taxes instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. H&rblock taxes Colleges and universities. H&rblock taxes   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. H&rblock taxes As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). H&rblock taxes   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. H&rblock taxes It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. H&rblock taxes If the business activity is unrelated, the income in both instances will be subject to the tax. H&rblock taxes If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. H&rblock taxes Title-holding corporations. H&rblock taxes   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. H&rblock taxes   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. H&rblock taxes However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. H&rblock taxes Example. H&rblock taxes X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. H&rblock taxes During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. H&rblock taxes X also receives $100,000 from source N, which is not related to A's exempt function. H&rblock taxes X and A file a consolidated return for the tax year. H&rblock taxes X has unrelated business income of $100,000. H&rblock taxes Prev  Up  Next   Home   More Online Publications