Why Reporting Your Tips Correctly May Be the Difference Between Approval and Denial

With the introduction of the new $25,000 tip deduction, the IRS is tightening its verification procedures — and one form has suddenly become extremely important:

Form 4070: Employee’s Report of Tips to Employer

If you earn tips and want to claim the deduction, the IRS will check whether you properly reported those tips to your employer using Form 4070 — or the approved digital payroll reporting equivalent through your employer’s HR/payroll system.

Failure to report tips correctly may cause the IRS to reject your tip deduction altogether.

What Is Form 4070?

Form 4070 is used by tipped employees to report monthly tip income to their employer. It documents:

• total tips received
• directly collected cash tips
• credit card tips
• electronic tips (app-based, point-of-sale, etc.)
• any allocated tips

The employer then uses this information to:

• withhold taxes from paycheck
• report earned wages to the IRS
• issue an accurate W-2
• correctly calculate taxable income

The IRS Logic: If You Didn’t Report It, You Can’t Deduct It

Here’s the key point:

The IRS only allows the deduction for tips that were legally reported to your employer.

If:

• you received tips
  BUT
• did not report them using Form 4070

then in the eyes of the IRS:

• those tips did not officially exist
• they cannot be deducted
• they cannot be included in the tip deduction
• the deduction claim will likely be denied

IRS Verification: Behind-the-Scenes Matching

When you file your return and claim the tip deduction, the IRS:

1. Checks your W-2
2. Looks at the tip amounts listed
3. Cross-verifies the totals with employer-submitted tip reports
4. Confirms use of Form 4070 or equivalent
5. Verifies that withholding matches reported tips

If your return lists tips that:

• were not reported to the employer
• exceed what was reported
• were never filed through Form 4070

your refund will almost certainly be held.

Transcript Signals of a Tip Mismatch

If the IRS suspects under-reporting or unreported tips, you may see:

• TC 570 — Refund Hold
• TC 971 — Notice Issued
  and potentially
• TC 290 — Additional Tax Assessed

Because unreported tips are taxable income.

And remember:

If you didn’t report tips to your employer, the IRS might add those tips back into taxable income.

Who Is Required to File Form 4070?

Anyone who receives:

• more than $20 in tips in a month

must report them to their employer using:

• Form 4070
  or
• the digital payroll reporting interface used internally by your workplace (e.g., Toast, Aloha, Micros, Square, Clover)

This includes:

• servers
• bartenders
• baristas
• casino dealers
• spa and salon workers
• bell staff
• delivery staff
• rideshare drivers working under employment agreements

When You Must File Form 4070

The form must be submitted:

• by the 10th day of each month
  covering tips received in the previous month.

What If You Didn’t Report Tips?

If you failed to submit Form 4070:

• your W-2 won’t reflect accurate tip income
• your employer’s records won’t match
• the IRS will mark the deduction as unsupported
• your return may be flagged for unreported income
• penalties may apply

And importantly —

You cannot fix this at tax time by simply “declaring tip income retroactively.”

How To Stay Compliant and Protect Your Refund

• submit Form 4070 on time each month
• keep your own logs of tips received
• retain pay stubs
• request employer confirmation of recorded tips
• confirm accurate totals on your W-2 Box 1 and Box 14

If your tip reporting is clean — your deduction is clean.

The IRS wants one simple thing:

• If you earned tips → report them to your employer → get them on the W-2 → then deduct.

Form 4070 — or the employer’s digital reporting system — is the official trail of proof.

No Form 4070 = no documented tips.
No documented tips = no deduction.

Proper tip reporting protects your refund and keeps you on the right side of IRS compliance.