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| Waiter Training Newsletter |
Books & Manuals Restaurant Training Manuals Training Book for Waiters & Waitresses Tips and the IRS
Spring has arrived! April is here and you know what that means! No, April Fool’s Day is past, no more practical jokes. I’m talking TAX TIME! People have yet another reason to watch their pennies; many of us have to give money to the IRS at this time of year and we don’t want to spend any unnecessary cash!
This is also a good time to remind servers that there is a myth out there about reporting tips earned. Many restaurant employers and restaurant employees may have heard the false rumor that tip-earners only need to report tips equal to 8% (or perhaps some other number, such as 10%) of their sales. That's a widespread misconception. The law requires employees to report and pay taxes on 100% of the tips they keep after tip-outs. It's that simple.
The 8% figure is simply a threshold below which many employers must allocate tips and report certain additional information to the IRS. The IRS can use this information to flag restaurants where employees may be underreporting tips. Reporting less than 100% of tips can get both you and your employer in trouble.
If you earn tips, be aware that if you receive more than $20 in a month in tips, ALL these tips count as income that you must report and pay taxes on. That includes your cash tips, your charge-card tips and any tips you get from other employees, minus what you tip out to others.
You may have heard all you need to do is report tips equal to 8% of sales, or 10% or just your charge-card tips. That's a big misconception and could get you in legal trouble if you earn more. The law requires you to report and pay taxes on 100% of the tips you keep after tip-outs.
If you get audited, there's only one thing that'll save you: good daily records. The IRS requires tipped employees to keep a daily tip diary or other evidence to prove tip earnings. Your daily records must show how much you made in cash tips and charge-card tips, the amount of tips you received from other employees through tip pools or other tip-sharing arrangements and the amount tipped out to other employees.
While you're not required to use the IRS's forms to keep track of your tips, the IRS offers Form 4070A, Employee's Daily Record of Tips that you can use as your personal tip diary. Call the IRS at (800) TAX-FORM.
Anyone who receives $20 or more in tips in a month must report all tips to their employer by no later than the 10th day of the following month. Employers may require employees to report tips more often, like every week or at the end of every shift.
This requirement applies both to directly-tipped employees, such as servers who get tips directly from customers, as well as to indirectly-tipped employees, such as bussers, who may share in these tips. An employee's written tip report must include certain information: Check out IRS Form 4070, Employee's Report of Tips to Employer, for details.
If the IRS audits you and finds out you didn't report all your tips, you could be facing some big bills. Falsifying tip income is illegal. You'll owe income and FICA (Social Security and Medicare) taxes on the unreported tips. You'll probably be stuck with interest and penalties. What's more, the IRS has the right to audit at least as far back as three years -- or further, if the agency believes it's a case of fraud. Some restaurant servers have even been jailed for tax evasion.
I recently did a training for a new restaurant and many of the new servers believed this same myth. When I informed them of the reality of the situation, a few of them acted as if I didn’t know what I was talking about. A word of caution: make sure your servers understand the implications of not reporting 100% of tips. They risk not only harming themselves, but your business, as well.
Susie Ross has been involved in the hospitality industry for ten years
. She has just written a definitive work on front of house customer service and techniques for waiters and waitresses. For more information about Susie's book, "A Waiters Training," her training manuals and training seminars please visit her at http://www.waiter-training.com or email her at susie@waiter-training.com.©Waiter Training 2003
Excellence is an act won by training and habituation.
We do not act rightly because we have virtue or excellence,
but rather we have those because we have acted rightly.
We are what we repeatedly do.
Excellence then, is not an act, but a habit.- Aristotle
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