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I am technically self-employed and report my income as such on my tax return, along with paying quarterly estimated taxes as required.
My income is entirely composed of voluntary tips, and almost always cash, with the exception of a Venmo payment occasionally.
Are there any requirements to report large tips that I should be aware of? Any other uncommon rules when it comes to something like this that I should know about? I doubt I'll reach any such limits, but I'd like to know for sure.
ALL tips are taxable income and should be reported on your return, regardless of size.
The tips should also be reflected in your quarterly estimates to avoid underpayment penalties.
From the IRS:
All cash and non-cash tips an received by an employee are income and are subject to Federal income taxes.
The requirements regarding reporting tips to employers don't apply to you since they are required for the employer to pay for medicare and SS on your behalf. Being self-employed, you will need to pay self-employment tax on that income instead.
There is no mention of a "threshold" below which you don't have to report tips. In fact, the example on this form uses only $18 in tips as an example:
Example. Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2022) on June 30 and received $10,000 in wages during the year. Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. He wasn’t required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required.
Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages + $7,000 reported tips) in box 1. He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return.
