You must keep a daily tip record so you can:

• Report your tips accurately to your employer,
• Report your tips accurately on your tax return, and
• Prove your tip income if your return is ever questioned.

There are two ways to keep a daily tip record. You can either write information about your tips in a tip diary, or keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips.

Tip diary. If you keep a tip diary, you can use Form 4070A, Tipped Employee’s Daily Record of Tips. The form is available at www.irs.gov.

If you do not use Form 4070A, start your records by writing your name, your employer’s name, and the name of the business. Then, each workday, write the date and the following information.

• Cash tips you get directly from customers or from other tipped employees.
• Tips from credit and debit card charge customers that your employer pays you.
• The amount of any tips you paid out to other tipped employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips.

Electronic tip record. You can use an electronic system provided by your employer to record your daily tips. If you do, you must receive and keep a paper copy of this record.

Tips defined. Whether a payment constitutes a tip is generally based on the following factors.

• The payment must be made free from compulsion,
• The customer must have the unrestricted right to determine the amount,
• The payment should not be the subject of negotiation or dictated by employer policy, and
• Generally, the customer has the right to determine who receives the payment.

Service charges. Do not write in your tip diary the amount of any service charge that your employer adds to a customer’s bill and then pays to you and treats as wages. This is part of your wages, not a tip.

Example #1: Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. Do not include the 18% charge in your tip diary. Service charges that are paid to you are considered wages, not tips.

Example #2: Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. Be sure to include this amount in your tip diary.