Consumer Car Buying Advice Blog

The way tip income is reported can make the difference between an approval and a turn down of no credit auto loans

Letting you know

People with bad credit and tip income normally face a number of problems when applying for horrible credit auto loans.

We know this because for the last two decades we’ve been involved with bad credit car sales here at Auto Credit Express. Our website is designed so that credit-challenged car shoppers can understand such topics as buy and pay here dealers and credit scores as well as today’s topic, how tip income can complicate a bad credit auto loan.

Reporting tip income

People who receive tips don’t always report all of this income on their tax returns. This can save them money, but if they have poor credit it could result in a denial of credit.

This IRS says this:

If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your Federal income taxes. Here are four things the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.

2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

Proving your income

While traditional banks usually don’t verify income, this isn’t true with lenders that will finance a bad credit car. This means that if your total income isn’t listed on a W-2 or a tax return, there is no proof. Even with bank records that show additional income, you still have no proof unless this income appears on your tax return.

Income Requirements

Bad credit lenders typically have minimum monthly income requirements. They use this income, together with your monthly bills, to compute a debt-to-income ratio for a car budget. This can affect people with tip income in two ways:

1.    If the income on your tax return is too low, you won’t qualify for a problem credit auto loan

2.    If you income is sufficient but your monthly debts are too high compared to the income you report (typically because the actual income is higher) you also won’t qualify for a bad credit auto loan.

As we see it

If you have poor credit and receive tip income, the solution is to report everything on your tax return. If you don’t, it could prevent you from getting no credit auto loans.

At Auto Credit Express we specialize in assisting people with bad car credit find a dealer for their best chance at getting a bad credit car.

So if you really want to put your auto credit back on track, you can begin now by filling out our online car loans bad credit application.

Tags: Bad Credit, bad credit auto loans, tip income

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