All tips received are income and subject to federal income tax. Tips should be included in gross income. Items such as tickets, passes, or other items of value are considered noncash tips and are income and therefore subject to tax.
Tips of $20 or more per month from one employer must be reported to the taxpayer's employer on Form 4070. The employer will withhold Social Security, Medicare, federal, and state taxes from the employee's paycheck. The withholding will be based on regular wages and reported tips.
Tips under $20 per month do not need to be reported to the taxpayer’s employer. However, these tips must still be reported to the IRS as income.