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Tax about tips
 

Thread: Tax about tips

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    Tax about tips
    For those who work in a restaurant as a server, you will definitely receive tips and most of the time you have to file tax for the tips you have earned. I have always wondered how does it work, I mean, do you file the tips tax in your own or does the restaurant do it for you? Do you have to go to the accountant and ask for that or what? If anyone works at a restaurant and receives tips, please let me know how you file tips.


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    If the restaurant is going to be fully legitimate with their reporting, servers need to disclose their daily cash tips and that gets reported on their paychecks, with taxes taken out. Credit card tips are obviously going to be dispensed from the restaurant directly, so that almost always gets reported (because it's very easy for the IRS to find). However, many businesses overlook the cash tips as a way to give an artificial raise to their serving staff, because the IRS can't prove they've received any. If the business doesn't report cash tips, in my experience, it still leads to a high risk of auditing, because the IRS aren't idiots and they know you are shady if you aren't reporting cash tips.


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    Yes.
    I don't have first hand experience with this but from people that worked as servers I do know that tips must be reported like all other income (in the US at least). Some restaurants can choose to do the reporting on behalf of the employees based on sales, or more commonly, the employee reports the tips at the end of the shift. In case you're not reporting the tips, then, like CSomm said, an audit is plausible. The IRS will estimate your tax based on the number of sales or by using the reported restaurant income/hours worked/shifts.

    Just make sure to check the official resources online, if I'm not mistaken some states do not tax tips.


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    When I was a server, I honestly didn't claim all of my tips like I should have. I was young, though, and I never got caught or anything. You are supposed to claim ALL of your tips, though.


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    I would always claim my tips through the restaurant like it was a part of my check. It was simple and easy.


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    Never knew you had to pay tax on the tips you received, wow! As the poster above me said though, I would just claim the tips as it was part of my main income.


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    I think that is ridiculous. How would the government possibly regulate something like that. If the waitress doesn't report getting a tip how would they possibly know? I thought tips were classified as gifts? So how can they take taxes out of it. The poor waitresses are already making minimum wage, and the government wont even let them have tips! Sad.


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    You're supposed to tell your work about your tips so that they take tax out in your regular paycheck and you aren't stuck with a big bill at the end of the year. If you haven't, then you can add them into your return, but you might owe more, or your refund will be less. You can do it either way though.


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    Quote Originally Posted by Gmac9100 View Post
    I think that is ridiculous. How would the government possibly regulate something like that. If the waitress doesn't report getting a tip how would they possibly know? I thought tips were classified as gifts? So how can they take taxes out of it. The poor waitresses are already making minimum wage, and the government wont even let them have tips! Sad.
    It's unlikely that the government will ever find out, true---but you wouldn't want your business to be held liable for the tax evasion if they were to do an audit, and they would probably discover the truth if they DID audit. So, it's a slippery slope, and most businesses prefer to stay on the up and up. Better to do your part for the nation than suffer for it!


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    Tips are generally included in as other income on your personal tax return.

    Some employer may report the tips as part of your T4 slips.

    Sincerely,
    Madan Chartered Accountant


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