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Form 4070 is the IRS document tipped employees use to report their cash, credit card, and pooled tip income to their employer each month. Federal law requires you to report tips of $20 or more received in a single calendar month to your employer by the 10th day of the following month. Your employer uses those reported figures to calculate the correct payroll tax withholdings on your wages. The form stays with your employer as a payroll record and does not get sent to the IRS.
Any employee who receives $20 or more in tips during a single month must report them to their employer using Form 4070 or any equivalent written statement. The reporting obligation applies to all tip income you receive.
Non-cash tips do not need to be reported on Form 4070 to your employer, but you must still report them to the IRS on your individual tax return.
Once you report your tips, your employer adds them to your gross wages for the pay period. Federal income tax, Social Security, and Medicare are then withheld based on the combined total of wages plus reported tips.
If your regular wages for that period are not large enough to cover all the applicable withholdings on your tips, your employer can reduce the withholdings in a defined priority order. Any uncollected Social Security and Medicare taxes on tips will appear on your Form W-2 at year-end. You owe those amounts when you file your annual return.
The IRS uses statistical methods to identify returns where reported tip income is implausibly low relative to total wages in tip-intensive jobs. Restaurant workers, hotel staff, casino dealers, and anyone else in a high-tip role should assume tip reporting is a monitored area.
Employees who consistently under-report risk back taxes, a 20% accuracy-related penalty, and interest going back to the year the income was not reported. The IRS also operates industry-wide programs such as the Tip Rate Determination Agreement and Tip Reporting Alternative Commitment, which allow employers in certain industries to agree on tip rate assumptions and reduce their audit exposure in exchange for compliance commitments from employees.
IRS Publication 1244 includes Form 4070A, an Employee's Daily Record of Tips. Keeping a daily log protects you if your reported amounts are ever questioned. A contemporaneous daily record is far more credible in an audit than a monthly estimate reconstructed from memory.
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