Which type of tip income is subject to federal income tax?

All types of tips are subject to federal income tax because the Internal Revenue Service (IRS) considers tips as part of an individual's taxable income. This includes cash tips, noncash tips (like gifts or certain services), and tips that may not be reported to an employer.

Even though there are thresholds for reporting, such as reporting tips to an employer when they exceed $20 in a month, all tips are still taxable regardless of whether they are reported. This ensures that individuals pay tax on their full income, consistent with the tax law's requirement that all income, from any source, is generally taxable. Therefore, all types of tips, irrespective of the amount or reporting status, contribute to the overall taxable income and must be acknowledged on tax returns.