Social Security Tips (W-2)

Social Security Tips on a W-2 refer to the tips reported by an employee that are subject to Social Security and Medicare taxes. Tips received directly from customers, including cash, credit cards, and other forms, must be reported as income to the employer. These reported tips are then included on the employee’s W-2 form, where they contribute to the calculation of Social Security and Medicare taxes withheld.

Proper reporting ensures employees receive credit toward Social Security benefits based on their total earnings.

Key Facts

• Reported Tips: Employees must report tips totaling $20 or more per month to their employer.
• Inclusion on W-2: Reported tips are included in Box 7 and Box 5 of the W-2 form, affecting Social Security and Medicare wages.
• Tax Withholding: Employers withhold Social Security and Medicare taxes on reported tips, even if the tips are not received through payroll.
• Purpose: Reporting ensures employees’ tips count toward their total earnings for Social Security benefits.
• Tip Credit: Employers can take a credit against their payroll tax liability for the Social Security and Medicare taxes paid on employee tips.

1. Do I have to report all my tips to my employer?

You must report tips of $20 or more per month to your employer.

2. Are tips subject to Social Security tax?

Yes, reported tips are subject to Social Security and Medicare taxes.

3. How do reported tips affect my W-2?

They are included in the Social Security and Medicare wages boxes, impacting tax withholdings and earnings records.

4. What if I don’t report my tips?

Failure to report tips can result in tax penalties and affect your Social Security benefits.

5. Can employers use tip credits for taxes paid?

Yes, employers can claim a credit for the Social Security and Medicare taxes they pay on employee-reported tips.