All you have to do is reduce that tip income that you are reporting. For example, if you receive a $1000 tip and give bartender $250, you only need to report $750 as your tip income.
When you enter your W-2 form, be sure to select box Unreported Tips when you see the screen Do any of these uncommon situations apply to this W-2... and continue through the prompts. On the Tips Not Reported to (employer name) screen, answer the question about your tips. On the Enter Any Tips You Didn't Report to (employer name) screen, enter the amount of your tips.
This link shows you exactly how to report it... the data entry is immediately after you enter your W-2 form:
https://ttlc.intuit.com/questions/1899731-entering-unreported-tips
If you'd like, more information on tip income:
This isn't regarding tips reported to the employer. Is the tip out amount going unreported? Your total gross income is including your tip out, correct? What about line 21 is that a box to add total tipout for the year?
Your employer is supposed to deduct tip-outs on your W-2.
If that is not done, you're on the hook for that tax on that.
So there is no way to not pay the tax on the tipped out amount.
From what I was told from an Intuit employee is that you can only report payout income you receive from other employees not payout expenses you give out. Is that double dipping by the IRS or what?
This is what they sent me from the IRS
"If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Don't report on your income tax return any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees."
Anyone clear on this???
Yes. TurboTax allows you to deduct tip outs from your allocated tips. You are only taxed on the tips you actually keep.
Here's what to do:
This is great information. What about if I don't have unreported tips (all tips reflected in W2), but W2 does not reflect tips paid out through tip sharing? When I tried to enter $0 for unreported tip income and the amount I paid out to tip pools (bar, support staff, etc.), I get an error - All unreported tips should not be less than the tips paid out through a tip sharing arrangement. Appreciate any help you can provide.
Leave those boxes blank and only enter an amount in the tip-out box (Total tips that you paid out through tip sharing).
That's what I thought also, but the program itself will not allow that single entry. Give it a try, you'll see it makes sense to do exactly what you say but it doesn't accept it when you do your final check it comes up with an error and you have to put it back to 0 to get rid of the error.
Your system will not allow me to do this. I was on a chat line (as I upgraded my TurboTax) & they could not help
Did you ever figure this out? I got screwed last year, and I’m trying to make sure this doesn’t happen this year. Every time I clock out, I’m claiming more than I walk with, because of tip outs (most sales are credit, and our tip outs are high). It’s so frustrating paying taxes on money I don’t get to keep.
Your employer is supposed to report your net tips, after tip-outs.
In your situation, see Form 4852, which alllows you to report the correct tip compensation after contacting the IRS to inform them that you attempted to get a corrected W-2c from your employer but were unsuccessful.
The answer is above by ErnieSO.
Basically, even though they are tip outs, IF your employer DID include the tips you paid out to others as tip sharing, then you would enter your W-2 and afterwards, you would select Unreported Tips under Lets Check for Uncommon Situations.
Then you will enter Total Tips that you piad out through tip sharing. Do NOT include tips on here that were NOT included on your W-2.
Do you know then how the tips that are on your w-2, but a portion has been paid out to a tip pool is actually reflected on the tax return?
Thanks!
The owner will not amend your W-2, You cannot go the IRS, DOL, BBB or the Hague.
How do I reduce my tip income reported on my w-2 on my 1040?
It cannot be done on IRS Form 4137 because the is only for unreported tips that you received.
I do not think it advisable to enter what is on your w-2 less these payouts.
I am thinking maybe put on Schedule 1 Line Z, and describe it as maybe redistribution of Tips???
Anyone? Thanks!
There is a way to make an adjustment to your allocated tips, but you must be sure that you have an appropriate and complete log of all tips, such as a tip book, to substantiate the adjustments.
This is more commonly done for instances where your allocated tips are based on sales but are less than what you actually received, rather than for tip-outs.
However, the mechanics of adjusting the allocated tips in TurboTax are to adjust the box 8 number in the follow up questions after entering your W-2.
You do not send any tip book/tip log that you have with your return but keep it somewhere that you can easily access it for at least 3 years in case the IRS asks you to support the adjustment.
Thx for this, but still need help. My daughter's employer/restaurant only reports GROSS tips received (she is a waitress), and reports this on W-2 Line 7. All good. But like most servers, she pays tipouts to other staff - 15% of her tips received. Thus, her W-2 Line 7 is higher than her actual income. When I try to use the Unreported Tip section in TurboTax (which feeds federal W-2 Additional Wage and Tax Information form), I cannot enter a Tips paid out by you (line 10e) unless I ALSO enter additional unreported tip income. The effect of this just adds more tip income before taking it back off....and doesn't lower with is taxable on W-2 Line 7. Suggestions?
Yes, You are correct that the only place that reports "tips payout" is in the unreported tip section but is useless since the full amount of the tips is reported in Box 1 of the W2. You would need to enter an amount in Box 10A to offset the amount of the "tips payout" or else you won't be able to e-file your return. Here's my suggestion on how to get around this issue.
Now go to unreported tips and report the gross amount of the tips in Box 10A and then report the tip outs in Line 10F.
I can't guarantee that this will escape scrutiny from the IRS so I suggest that your daughter to keep meticulous records of all her tips and her payouts and any other statements her employer gives to her.
Save this transcript I just described and I'll stand by my advice I give to you. We will use the argument that if these tips can be offset using the unreported tip method, this should be available to those people who have a W2 with the gross amount of tips being reported as taxable income.
[Edited 03/18/2025|5:15 pm PST]