Tip reporting

[fionajean6477]

I was paid credit card tips on my paycheck to which I was taxed on . However, when I received my w-2 from ex employer it only gave my wages. I contacted them and I was sent a print out of my paychecks where it shows tip amounts and taxes that were taken out. How do I claim this on my taxes? 

[Vanessa A]

To enter your tips you will need to enter your W-2 and include the amount you received in box 7.  Entering the amount inbox 7 will trigger the rest of the questions after you hit continue when done entering your W-2.

In order to claim tips, the following must apply:

• The tips MUST be reported.  If they are not reported on a form to the IRS you cannot claim them for the no tax on tips deduction.
  • If employed they need to be reported on your W-2 or form 4137
  • If self-employed, they must be reported on a 1099.  If you received them as cash, they are not deductible. 
• Your income must be below $150,000 if you are single or less than $300,000 if Married Filing Jointly.  Above these amounts, the deduction starts to fade out and is not available at all for those with income over $400,000 for single and $550,000 for Married Filing Jointly.
• You can not claim this deduction if you are Married Filing Separately
• You receive tips from an occupation that normally and customarily receives tips

If all of the above apply, TurboTax will generate a Schedule 1-A for your return.  This amount will be deducted from your AGI. Remember, this is a deduction NOT a credit.  This means it will lower your taxable income, which can lower your tax liability.  You will  NOT see a refund in the amount of the Tips you enter. Tips are reported on Schedule 1-a, Part II with the total amount you are qualified for reported on line 13 of Schedule 1-A.

If you are getting the deduction and have income left to reduce, you will see the change to your income on line 11a of your form 1040.  If your AGI is lower than your tips  your benefit from the deduction will be limited to your AGI before the deduction. 

To see your form 1040 you can switch to forms mode if you are using TurboTax Online or if you are using the online version you can select Tools>>Tax Tools>> Preview my 1040.

 This is the "learning year" for all the new changes and not all companies are reporting things the same way yet.  Box 7 is not a box that the IRS generally uses for anything.  They are most concerned with box 1 and 2 and then the rest of your forms that are filled out and filed. 

  If you want to ask for a corrected W-2, it would not hurt.  Some employers will, others won't.  But, if you have one that won't, just file using the above steps.