The National Directory of Certified Public Accountants

Ask A CPA - Miscellaneous Income

Employer - Allocated Tips

Per the IRs requirements, certain employers must allocate tips if the percentage of tips reported by employees falls below a required minimum percentage of gross sales. To allocate tips means to assign an additional amount as tip income to each employee whose reported tips are below the required percentage. All tips you receive are taxable. If you do not have adequate records for your actual tips, you must include the allocated tips shown on your Form W-2 as additional tip income on your tax return Form 1040 line 7.

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