Are noncash tips excluded from W-2 compensation? True or False?

Noncash tips, such as those received in the form of goods or services, are indeed excluded from W-2 compensation reporting. While cash tips must be reported as income and are subject to taxation, noncash tips do not qualify in the same manner. The IRS defines noncash tips as items given to employees as gratuities that are not in the form of cash. For W-2 reporting purposes, only cash tips are included in an employee's taxable wages.

This distinction is essential in payroll and tax reporting, as noncash benefits do not impact the calculation of social security or Medicare taxes in the same way. Understanding the nuances between cash and noncash tips helps payroll administrators ensure accurate tax withholding and reporting, aligning with IRS guidelines.