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My Form W-2 includes “allocated tips.” What are allocated tips, and are they taxable?

April 26, 2017allocated form includes taxable tips W-2

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My Form W-2 includes “allocated tips.” What are allocated tips, and are they taxable?

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A. Certain employers must allocate tips if the percentage of tips reported by employees falls below a required minimum percentage of gross sales. To “allocate tips” means to assign an additional amount as tips to each employee whose reported tips are below the required percentage. For additional information on how the rules for tip allocation work, refer to Chapter 7 of Publication 17, Your Federal Income Tax. All tips you receive are taxable. If you do not have adequate records for your actual tips, you must include the allocated tips shown on your Form W-2 as additional tip income on your return. For more information on the requirements, see Tip Allocation in Publication 531, Reporting Tip Income. Refer to Tax Topic 402, Tips, for other important information.