Simply put, tips are part of your income and must be reported. Downplaying your tip report is a violation of IRS regulations and therefore against the law.

  • By law, employees must report all tips to the employer.
  • By law, employees must record of tips every day showing the following information:
    • total cash tips received
    • total charged tips received
  • Employees audited for underreporting tip income could find themselves paying penalties of as much as 50% of the unpaid taxes, plus interest.

Under Reporting Tactics

If you report some arbitrary smaller amount; or enter some even number like $20; or some amount like half of what you really make; or round down by $5 or $10 dollars... we will know this and so will the IRS. Why? Because we have historical data of the amount of tips each shift in each store makes, and we report data to the IRS. We have to and here's why...


Aldridge, Inc. is a T.R.A.C. participant. TRAC stands for Tip Rate Alternative Commitment. TRAC provides employer protections from employer-only audits and assessments of FICA taxes on tips which means that we will not be held responsible for the under-reporting of employee tips, the employees themselves will. We signed TRAC because the IRS approached us and asked us to. Prior to TRAC, employers were held responsible for the under-reporting of tips by employees. By signing TRAC, which includes certain requirements such as tip reporting education, the burden of under-reporting, and therefore the possible IRS audit and penalties, shifts to the employees. Click here to read more about TRAC if you like.

Other Reasons for Truthful Reporting

Reporting a higher income level by including all your tips as required by law will yield greater Unemployment Insurance, Worker's Compensation Insurance, Disability Insurance and -- eventually -- Social Security benefits, as well as a better credit rating for a car, home or apartment.