Many employees, especially those in the service industry, receive tips in the course of their work. Waiters, bartenders, and barbers are just a few occupations where employees commonly receive tips. And, while it’s nice to have cash in your pocket after finishing a shift, how do you account for these tips come tax time? Do you pay tax on gratuity? Are tips and service charge taxes treated differently than regular income?
In this article, we’ll answer all of these questions and more. We’ll start by explaining the differences between service charges vs. tips and then go into the tax rules for each. By knowing who’s responsible for paying certain taxes and the reporting requirements, you can stay in compliance with the Internal Revenue Service (IRS).
To learn more about the difference between tips and service charges and find out how each is taxed by the IRS, read on. Alternatively, you can use the links below to navigate to any section in the article.