Every year across Canada, some of the country’s service industry workers file their taxes without adequate support for their tip income.
Tax Myth: I can report my tip income as a percentage of my T4
Although this is a common practice for some taxpayers in Canada, it is not an acceptable method of reporting tip income. In fact, in some cases the employees are not required to report tips at all as the responsibility may fall on the employer.
Regardless of whether the employee or the employer is reporting the tip income, 100% of the income needs to be reported on a tax return. Tips are usually based on a percentage of sales, not a percentage of an hourly wage; reporting your tip income as a percentage of your T4 is inappropriate.
If the tips or gratuities are not included on your paystub, the best bet is to keep a detailed record and report that amount on your tax return. Don’t worry, of course there’s an app for that! Check out TipSee or other Tip Trackers in the app store to help make tracking tips easier.
If you are an employee receiving tips that are not reported on your T4, you need to remember that this additional income might cause you to owe money when you file your taxes. If you are an employer curious about the current treatment of tips or gratuities paid to your employees, check out our May 2016 article on employer responsibilities for more details.
Whether you’re an employee or an employer, we can help. If you have any questions about reporting tip income, contact us today!