Which item is reported to the IRS as employee income?

Which item is reported to the IRS as employee income?

• A. Tips received by an employee
• B. Money paid to vendors for products
• C. Operating expenses paid by the salon
• D. Change given to a client following payment

Answer: (A)

Tip income is income that must be reported to the IRS as part of an employee's earnings. In a salon, staff who receive tips from clients must include those tips when calculating taxable income, and the employer reports total wages including tips on the employee’s Form W-2 for withholding and year-end tax reporting. Other items listed are not income to the employee: money paid to vendors for products are business expenses paid by the salon; operating expenses paid by the salon are costs of doing business; change given to a client after payment is cash returned to the customer and does not become the employee’s income.

Tip income is income that must be reported to the IRS as part of an employee's earnings. In a salon, staff who receive tips from clients must include those tips when calculating taxable income, and the employer reports total wages including tips on the employee’s Form W-2 for withholding and year-end tax reporting. Other items listed are not income to the employee: money paid to vendors for products are business expenses paid by the salon; operating expenses paid by the salon are costs of doing business; change given to a client after payment is cash returned to the customer and does not become the employee’s income.