Tipped Employee Definition

A tipped employee is someone who earns $20 or more each month in tips, on top of base salaries or hourly wages.

Tipped Employee Extended Definition
Tipped employees earn $20 or more per month in tips in the form of cash, credit charge-ups, non-cash valuables, or split-tip programs.

Employees who receive tips are subject to federal income tax under current Internal Revenue Service rules. All tips are considered taxable income by the IRS and must be carefully documented to avoid penalties.

Tipped employees must report all gross income they receive while engaged in work-related duties, including those given to them directly by customers or through tip-splitting or pooling programs.

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Last Updated By

Rachel Blakely-Gray | May 01, 2023