“Is it legal or not, not to declare tips?”

In the United States, millions of people work in restaurants, hotels, delivery services, beauty salons, and other businesses where tips are a significant part of their income. However, there is much confusion about how to report them on their tax returns and the consequences of not doing so.

In this article, we clearly explain what the IRS says, how you should register your tips, and the benefits and risks of doing so correctly.

What are tips according to the IRS?

The IRS considers any additional payment a customer gives you for your service as tips, whether it's:

• Cash received directly.

• Tips included in card payments.

• Tips from delivery apps (Uber Eats, DoorDash, Instacart, etc.).

• Tips shared in a “tip pool” among employees.

All of these tips are considered taxable income .

Do I have to report all my tips?

Yes. The law states that if your cash tips exceed $20 per month , you are required to report them to your employer on Form 4070 (Record of Tips). Your employer will, in turn, include this information on your W-2 , and the IRS will expect to see it reflected on your tax return.

What happens if I don't report my tips?

Many workers think that failing to report small tips has no consequences. However:

• The IRS cross-references information between restaurants and employers, which can lead to audits .

• Failure to report tips reduces your Social Security and Medicare benefits , which affects your retirement and future benefits.

• It can affect your income history and limit your options when applying for a mortgage, loan, or credit card .

Benefits of correctly reporting your tips

• Increase your official income history .

• Improve your chances of getting tax credits like the Earned Income Credit (EITC) .

• Protect your financial future by contributing to Social Security.

• It gives you greater confidence in the event of IRS audits or reviews.

  
  

New proposal approved “No Tax on Tips”

In 2025, Congress passed a proposal known as "No Tax on Tips," which seeks to make certain tips no longer taxable in some industries. Although it is still being implemented, it's important to continue reporting all your tips until the IRS publishes the final rules. At Professional Taxes LLC, we'll keep you informed about these changes so you can take full advantage of every benefit.

Conclusion

Tips are an important part of your income, and reporting them correctly is not only a legal obligation but also a smart strategy for your financial future. At Professional Taxes LLC, we help you file your taxes correctly and take advantage of all the benefits available to you. Whether you receive tips in cash, through apps, or directly at work, our team is ready to guide you step by step .

Contact us today at Professional Taxes LLC and let us ensure your refund is as large as legally possible, while maintaining IRS compliance, all hassle-free.

Sources consulted

IRS – Tip Income

IRS Reporting Tip Income

IRS Publication 531

IRS – Publication 15

Kiplinger “No Tax on Tips”