Are tips taxable?

As a rule, if you work off the assumption that ALL income is taxable unless otherwise stated by a relief or an exemption then you won’t be disappointed when told otherwise.

The same goes for tips. Tips received by retail, restaurant or any other staff are taxable however the process for paying tax on those tips varies depending on the following two scenarios: 

  1. Where the employer collects and re-distributes the tips to staff

Where the tips are collected and distributed to staff, the employer is obliged to operate PAYE via the staff payroll in respect of the tips collected. These amounts are fully taxable in the hands the employees, however the obligation is also on the employer to apply PAYE, USC and PRSI.

This normally happens where customers add a tip to the bill when paying with Visa/Debit card. Since the tip has been paid to the employer to re-distribute to the staff they have no option but to deduct PAYE. 

  1. Tips paid directly to staff by customers

In this scenario, the income is still taxable however the difference is that where the tips are collected directly by the staff, the employer has no obligation to deduct PAYE, USC and PRSI. The onus is on the individual staff to declare this income and file and income tax return

This usually happens when customers leave a cash tip and the employer is not collecting the tips and redistributing to the staff. 

If you have any questions as to whether your payroll is compliant or have questions about the upcoming PAYE Modernisation, you can arrange an appointment or contact us here.