[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3121(q)-1]

[Page 92-93]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)
 
Sec. 31.3121(q)-1  Tips included for employee taxes.

    (a) In general. Except as otherwise provided in paragraph (b) of 
this section, tips received after 1965 by an employee in the course of 
his employment shall be considered remuneration for employment. (For 
definition of the term ``employee'' see 3121(d) and Sec. 31.3121(d)-1.) 
Tips reported by an employee to his employer in a written statement 
furnished to the employer pursuant to section 6053(a) (see Sec. 
31.6053-1) shall be deemed to be paid to the employee at the time the 
written statement is furnished to the employer. Tips received by an 
employee which are not reported to his employer

[[Page 93]]

in a written statement furnished pursuant to section 6053(a) shall be 
deemed to be paid to the employee at the time the tips are actually 
received by the employee. For provisions relating to the collection of 
employee tax in respect of tips from the employee, see Sec. 31.3102-3.
    (b) Tips not included for employer taxes. Tips received after 1965 
by an employee in the course of his employment do not constitute 
remuneration for employment for purposes of computing wages subject to 
the taxes imposed by subsections (a) and (b) of section 3111.
    (c) Tips received by an employee in course of his employment. Tips 
are considered to be received by an employee in the course of his 
employment for an employer regardless of whether the tips are received 
by the employee from a person other than his employer or are paid to the 
employee by the employer. However, only those tips which are received by 
an employee on his own behalf (as distinguished from tips received on 
behalf of another employee) shall be considered as remuneration paid to 
the employee. Thus, where employees practice tip splitting (for example, 
where waiters pay a portion of the tips received by them to the 
busboys), each employee who receives a portion of a tip left by a 
customer of the employer is considered to have received tips in the 
course of his employment.
    (d) Computation of annual wage limitation. In connection with the 
application of the annual wage limitation (see Sec. 31.3121(a)(1)-1), 
tips reported by an employee to his employer in a written statement 
furnished to the employer pursuant to section 6053(a) shall be taken 
into account for purposes of the tax imposed by section 3101. However, 
since tips received by an employee in the course of his employment do 
not constitute remuneration for employment for purposes of the tax 
imposed by section 3111, they are disregarded for purposes of the annual 
wage limitation in respect of such tax. Accordingly, separate 
computations for purposes of the annual wage limitation may be required 
in respect of an employee who receives tips. The provisions of this 
paragraph may be illustrated by the following example:

    Example. During 1966, A is employed as a waiter by X restaurant and 
is paid wages by X restaurant at the rate of $100 a week. At the end of 
October 1966, A has been paid weekly wages in the amount of $4,300 and 
has reported tips in the amount of $2,200. On November 6, 1966, A is 
paid an additional week's wages in the amount of $100 and on November 9, 
1966, A furnishes X restaurant a report of tips actually received by him 
during October. The annual wage limitation of $6,600 (weekly wages of 
$4,400 ($4,300 plus $100) and tips of $2,200) had been reached for 
purposes of the tax imposed by section 3101 prior to November 9 and, 
accordingly, no portion of the tips included in the report furnished on 
that date constitutes wages. However, since tips do not constitute 
remuneration for employment for purposes of the tax imposed by section 
3111, the weekly wages paid to A during the remainder of 1966 will be 
subject to the tax imposed by section 3111.

[T.D. 7001, 34 FR 1000, Jan. 23, 1969]