As a service professional, sometimes there can be nothing more rewarding than a generous tip from a customer. While those tips may feel great in the moment, come tax time, you can’t forget to include them in your income. The IRS offers these tips for taxing your hard earned tips:

1. They’re taxed. Tips are considered earned income and therefore are subject to Federal income Social Security and Medicare taxes. If you received noncash gifts, such as event tickets, the value of said items is included in your income.
2. They’re included. Tips must be included on your tax return, and are reported along with your wages on a Form 1040, line 7; Form 1040A, line 7; Form 1040EZ, line 1; Form 1040NR, line 8, or Form 1040NR-EZ, line 3. Included are tips in the form of cash, additions to credit card bills, and money of split with co-workers.
3. They’re reported. Earnings of $20.00 or more in tips have to be reported to your employer, who is then responsible for withholding Federal income, Social Security, and Medicare taxes. Non-monetary tips are not required to be reported. You may face a penalty for unreported income.