Wages and salaries

Wages and salaries are payments received by an employee for performing services for an employer. Generally, any payment received for performing personal services must be included in your gross income. Amounts withheld from pay for income tax, social security and Medicare taxes, pensions, insurance, and union dues are considered "received" and must be included in gross income in the year they are withheld. Generally, your employer's contribution to a qualified pension plan for you is not included in gross income at the time it is contributed. However, amounts withheld under certain salary reduction agreements with your employer may have to be included in gross income in the year they are withheld.

If an employer pays your social security and Medicare taxes without withholding those amounts from your pay, that amount is considered pay and must be included in your gross income.

Payments received for cancellation of employment are included in gross income, in the year received, and should be reported the same as wages and salaries. This statement is true even if the payment was received as settlement under the Age Discrimination and Employment Act.

Your employer should provide a Form W-2 showing your total income and withholding for the year. Total the wage and salary amounts reported on all your W-2 forms. (If filing a joint return, you must also include all amounts reported to your spouse on your spouse's W-2 forms). Enter the amount on the appropriate line for wages, salaries, and tips on your tax return. Also total the federal income tax withheld from all your W-2 forms, and your spouse's W-2 forms if filing a joint return.

Tip

All tips you receive are considered income and are subject to federal income tax. You must include in gross income all tips you receive directly from customers, tips from charge customers that are paid to you by your employer, and your share of any tips you receive under a tip-splitting arrangement with fellow employees. The value of non-cash tips, such as tickets, passes or other items of value, is also income and subject to federal income tax. If your employer reports allocated tips in Box 8 of your Form W-2, you should report the allocated tips on Form 1040, unless you have adequate records to show that you received a different amount. Do not include as a tip any service charge that your employer adds to a customer's bill and then pays to you and treats as part of your wages.

If you receive tips in excess of a certain limit in any one month from any one job, you must report the total tips to that employer by the tenth day of the next month.

You must report tips to your employer so your employer can withhold federal income tax and social security and Medicare taxes or railroad retirement tax on your tips. Any tips you reported to your employer are included in the wages on your Form W-2. Report to your employer only cash, check, or credit card tips you receive.

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