Declaring cash tips and earnings: what you need to know if you work in the service industry.
April 5, 2023
Working in the service industry has its perks, one of which is receiving cash tips and payments. But what does it mean for taxes?
Here’s what you need to know when it comes to declaring your cash tips and payments.
It might be tempting to not declare your cash tips and payments. Here’s why you need to.
The pros outweigh the cons when it comes to declaring cash earnings.
- Thinking of buying a home or getting a loan? The additional income can help you get approved more easily and for a larger sum.
- Tips qualify as earned income for Registered Retirement Savings Plans. Reporting cash earnings increases contribution limits, allowing you to invest more and further lower your taxable income.
- You can choose to pay Canada Pension Plan or Quebec Pensions Plan contributions with your tips, which will increase your pension amounts when you retire.
- You get peace of mind that you won’t need to suffer any of the consequences below.
Risks and consequences
- Not reporting cash earnings is illegal. It can result in penalties, fines and criminal convictions.
- If you get caught not declaring your cash earnings, you’ll end up paying more in taxes. Not only will you have to pay what you owe, but you’ll also need to pay additional interest and potential penalties.
- Working under the table contributes to a larger societal issue. Taxes fund programs and services that Canadians benefit from, like healthcare, education, Old Age Security, Employment Insurance, etc. When a portion of the population evades paying taxes, those programs don’t receive as much financial support.
When it comes to reporting cash earnings, there is a common misconception that the CRA has no way of knowing how much someone has earned, so perhaps they can declare some but not all. But did you know that your lifestyle might give you away if it doesn’t align with the reported amounts on your tax income? The CRA has many tools to detect underground economy activity and works closely with partners to combat this.
How to declare cash earnings.
During the year, you’ll want to track all cash tips and payments, and we recommend doing this daily or weekly, while your memory is fresh. This can be done through mobile apps, agendas or calendars, spreadsheets or any method that works for you. At year’s end, calculate the total received between January 1 and December 31. Declare this amount on line 10400 of your income tax and benefit return.
Do you work in the service industry and live in Quebec? Workers must declare their tips at the end of each pay period by submitting form TP-1019.4.V Register and Statement of Tips to your employer.
I didn’t realize that I had to declare my cash earnings. Is it too late to report it for past years?
No, it isn’t too late. The government has a Voluntary Disclosures Program that allows you to declare tips and earnings from previous years. If your application is accepted by the CRA, be prepared to pay the taxes owed plus interest. In some cases, you might be spared the expense of penalties as a reward to properly filing your taxes.
Are you looking for assistance with declaring cash earnings during tax time? Our H&R Block Tax Experts are here to help! Find an office near you to book an appointment today.