When must an employer report tipped income to the IRS?

An employer must report tipped income to the IRS when cash tips exceed $20 in a month. This threshold is set by the IRS and is specifically designed to ensure that a minimum level of tipped income is documented and reported for tax purposes. When employees receive cash tips exceeding this amount, they are required to report these tips to their employer, who then must include them in their payroll reporting obligations. This requirement helps maintain accurate records of income and ensures that both employees and employers are compliant with tax laws.

While tips received directly from customers are relevant to the overall income of a tipped employee, the reporting obligation triggered by the $20 limit is what establishes the requirement for the employer to take action. Employers are not obligated to report every single tip received, especially if the total does not meet the defined threshold, which clarifies when the IRS's reporting requirements take effect. Tips are reported periodically rather than solely during yearly tax filings; the monthly reporting is specifically tied to the cash tips that employees receive.