Tips and Meals

Tips

Tips are earned income and entitled to all Earned Income Disregard.

  • Tips must be counted as received, whether or not they are shown on the check stub or taxed for IRS purposes.
  • The customer must report the tips received based on the payroll period, e.g., if paid weekly, then tips would be reported on a weekly basis.

Note: The “Daily Tip Statement” (CSF 34) is available for customers to keep track of their monthly tips.

Exception: A recent law requires employers of waiters and waitresses to report 8% of the employee's gross income as tips, and to make that amount subject to withholding. There are discrepancies in the interpretation of this law, so the state has adopted the following policy:

  • While other occupations may also receive tips, when the customer is employed as a waiter/waitress, and receives tips, accept the customer's statement concerning the amount received in tips. This may be in conflict with the amount shown on the pay stub. THIS IS THE ONE AND ONLY CIRCUMSTANCE WHERE IT IS ACCEPTABLE FOR AN AMOUNT REPORTED BY THE customer TO DIFFER FROM WRITTEN EVIDENCE.
  • There must be complete documentation stating why a different amount is being accepted. It is the customer's responsibility to substantiate his/her claim.

Note: Waiters and waitresses must report the total amount of tips for each pay period on their SAR 7, not just the difference between what they actually receive and what is shown on the pay stub (e.g., customer's pay stub shows $18 in tips, the customer states that the actual amount received is $25, the customer must report $25 on the SAR 7, not the $7 difference).

Meals

When a waitress or waiter receives meals from the employer, this is considered partial income in kind and is exempt unless the customer receives all meals free of charge.

ExampleExampleIf the customer spends anything for food for himself/herself, income in kind is not counted.

The cost of the meals must be shown by the employer on the check stubs for tax purposes.

  • Meals are usually included in the gross amount.
  • When meals are included in the gross amount, do not include that amount as gross earnings.

Related Topics

Earned Income

WIA Income

Job Corps

Other Earned Income

Treatment of Excluded Persons Income