What Is Form 4070A and Who Needs to Use It for Tip Reporting?

Tracking tip income is essential for service industry workers, as the IRS requires accurate reporting for tax purposes. Since cash and credit card tips can be difficult to monitor, specific forms help ensure proper documentation. One such form, Form 4070A, helps employees keep daily records of received tips.

Who Must Use It

Employees who receive tips as part of their income must use Form 4070A to maintain accurate records. This applies to workers in restaurants, bars, hotels, and other service-based businesses where tipping is common. The IRS requires reporting for employees earning $20 or more in tips per month, making proper record-keeping essential.

Servers, bartenders, and hotel staff use this form to track daily earnings. Since tips come in different forms—cash, credit card payments, or pooled distributions—documenting them prevents discrepancies when reporting income. The IRS relies on these records to verify earnings, reducing the risk of audits or penalties for underreporting.

Employers also depend on accurate tip reporting to calculate payroll taxes. Social Security and Medicare taxes apply to reported tips, so businesses must ensure employees document their earnings correctly. Failure to report tips can result in additional tax liabilities for both employees and employers.

Proper Documentation

Form 4070A helps employees meet IRS reporting requirements by logging daily tip earnings. Records must include the date each tip was received, the total amount, and whether the tips were in cash, credit card payments, or received through tip-sharing arrangements. This ensures reported income matches actual earnings, reducing the likelihood of errors or audits.

Employees should store completed Form 4070A in a secure location and ensure records are legible and organized. The IRS recommends keeping these records for at least three years in case of an audit. Digital record-keeping is also an option, as long as it accurately reflects the original information. Many employees use apps or spreadsheets to track tips, which helps maintain consistency and prevents lost records.

Filing Steps

Once tip income is recorded, employees must report it to their employer and the IRS. This is done through Form 4070, submitted to the employer by the 10th of each month for the previous month’s tips. This form consolidates daily entries from Form 4070A into a single monthly report, ensuring employers have accurate figures for payroll tax calculations. Missing this deadline can lead to underreported income, which may result in penalties or interest charges.

To complete Form 4070, employees must include their name, Social Security number, employer details, and total tip earnings for the prior month. This total should include all tips received—cash, credit card gratuities, and amounts from tip-sharing arrangements. Non-cash tips, such as gift cards or event tickets, must also be reported as taxable income. While these items do not require withholding for Social Security and Medicare taxes, they must be included in an individual’s total earnings on their tax return.

Employer Involvement

Businesses with tipped employees must comply with IRS regulations by withholding and remitting payroll taxes on reported tip income. Since tips are considered taxable wages, employers calculate Social Security and Medicare taxes based on both the employee’s base wages and reported gratuities. Under the Federal Insurance Contributions Act (FICA), employers match the 7.65% tax rate paid by employees, which includes 6.2% for Social Security (up to the annual wage base limit) and 1.45% for Medicare. If an employee’s combined wages and tips exceed $200,000 in a calendar year, an additional 0.9% Medicare surtax applies, though the employer does not match this portion.

Employers must ensure reported tip income is included on Form W-2, so year-end tax documents reflect accurate earnings. Additionally, businesses in the food and beverage industry may qualify for the FICA tip credit, which allows them to claim a tax credit on the employer’s share of FICA taxes paid on tips that exceed the federal minimum wage. To qualify, employers must meet the requirements outlined in Internal Revenue Code Section 45B, which mandates that tipped employees receive at least the federal minimum wage before tips are factored in. This credit can reduce a company’s tax liability, making accurate tip reporting financially beneficial.