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An employee who receives cash tips of $20 or more in a month must report them to his employer by the 10th day of the following month. Forms 4070 and 4070-A (Employee's Report of Tips to Employer) are for use by the employee in recording tips and reporting them to the employer. Employers are subject to FICA taxes on the reported tip income.

If a tipped employee also earns regular wages, the amount to withhold on tips should be figured as if the tips were a supplemental wage payment. If income tax was withheld from regular wages you may withhold on the tips at a flat 25% rate or you may add them to the regular wages and withhold as if the total were a single wage payment. If income tax was not withheld from regular wages, the 27% supplemental rate may not be used.

The employee's income and FICA taxes on that income must be withheld but this withholding must be from wages other than tips that are under the employer's control. If the wages are not sufficient to cover the employee tax due on the tip income, the employee may furnish the employer with additional funds for this purpose. If, by the 10th day of the month following the month in which an employee's tip report was received, the employer has not had available sufficient employee funds to permit the withholding of the employee tax, the employers is no longer liable for the collection of the tax.

The employee is directly responsible for paying any portion of the employee tax that the employer cannot collect from wages or other funds furnished by the employee. The employer must show on Form W-2 the amount of any social security tax that he has been unable to collect from the employee during the year. is a free online resource featuring a compilation of research, collaboration and web tools for use by payroll professionals and more including information about payroll tax articles, federal tax information and state tax information.

Helpful Hint... Anytime you move or have a major life change (for example - marriage, divorce, birth of a child, etc.) always be sure to complete a new W-4!