What exactly is taxable income? And are the tips you make considered taxable? The Internal Revenue Code describes taxable income as “gross income means all income from whatever source derived.”

So that means yes, tips and other items of value received (such as tickets given by employers) are all subject to federal income, Social Security and Medicare taxes. Tips from customers, tips added to credit cards, and the tips you receive under a splitting arrangement between employees all need to be reported to your employer and you tax return.

Failing to report tip income could lead to serious consequences if you are audited and have underreported income. You could be held liable for civil fraud and tax negligence, which could result in heavy fines and/or jail time. So make sure you have reported all the “gross income” you have earned throughout the year in your tax return to stay out to trouble with the tax man.