Final answer:
By law, you must declare all tips when clocking out, as they are considered taxable income by the IRS. Tips are part of your overall income, and not declaring them can lead to tax liabilities. It's especially important for those earning subminimum wage to declare tips to reach the legal minimum wage.
Step-by-step explanation:
By law, you are required to declare all of your tips when clocking out. The Internal Revenue Service (IRS) states that all tips received by an employee are income and are subject to federal income tax. Employees must keep a daily record of tips received, report tips to the employer if it's more than $20 per month, and include all tips on their income tax return.
Regarding your paycheck and taxes, the taxes taken out are for federal, state, and local taxes based on the information you provided on your W-4 form. If you underreport income, such as tips, you could end up owing taxes at the end of the year. It's also important to understand the concept of total bill including tip and tax when dining out or providing services, as sales tax and tips contribute to the overall cost you pay or income you earn.
The practice of declaring tips is especially crucial for those who earn a subminimum wage, where tips are expected to make up the difference to at least reach the minimum wage. Not declaring tips properly can have legal and financial repercussions. Therefore, it is in the best interest of the employee to accurately declare all tips earned to comply with tax laws and avoid potential issues with the IRS.