Tips are taxable. The tips you receive are subject to federal income tax as well as Social Security and Medicare taxes. It may also be subject to state income tax as well. The value of non-cash tips, such as tickets, is income and is also subject to federal income tax.

Report tips to your employer. If you receive twenty dollars or more in tips in any given month then you should report the tips to your employer. Your employer in turn is required to withhold federal income, Social Security and Medicare taxes.

Keep a daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips to record your tip income.

Include tips on your tax return. You must include in income all cash tips you receive directly from customers, tips added to credit cards, and the share of any tips you receive under a tip-splitting arrangement with your fellow employees.

Please check out IRS Publication 531, Reporting Tip Income, or IRS Publication 3148, Tips on Tips for more information at www.irs.gov.