How tips work - what are the tax implications?
Tips are taxable remuneration for work and must be declared by the person receiving the tip.
It is important to clearly document how tips are handled to ensure proper tax management and accounting.
When the tip is given directly to staff
If the customer gives the tip in cash directly to the employee, the recipient is responsible for declaring the income in their income tax return.
In this case, the employer does not need to submit a tax return or pay employer's contributions on the amount.
The same applies if employees collect and distribute the tips themselves - as long as this is done without the employer's involvement.
When tips are handled by the employer
If the employer collects the tips (e.g. via cash register or card payments) and decides how to distribute the tips, it counts as a regular salary payment.
In that case:
- The tip is recognised as revenue in the company
- The payment is recognised as salary
- Employer contributions and tax deductions are made as usual
Cash vs. card payments
For the Swedish Tax Agency, it doesn't matter whether the tip is given in cash or by card - what matters is how the tip is handled:
- Cash tips that go directly to employees do not need to be recorded by the employer.
- Card tips or electronic payments should be recorded as a liability to staff and recognised when paid. To do this, you need to be able to show who among your staff received what - it is not enough to simply write ‘staff’.
To facilitate traceability, tips should also be recorded on the daily report.