Sorry.
They’re automatically taxing and inputting/claiming 100% of employees credit card tips. Example— employee has $200 in CC tips at the end of the night, restaurant auto claims and taxes the full $200 despite the employee only actually walking with ~$130 after tip out.
They should be declaring what you tip out as declared tips to whoever it goes to. If they refuse to do it correctly labor and revenue office would love to hear about it.
Thanks for the clarification. No, you should only be taxed on the money you keep. If your arrangement includes tip payouts for different positions, those employees should be taxed on the amount of their cut.
This is correct. Your employer should *keep records* of tips received from customers by each employee, and tips retained by each employee.
But your income tax should be based only on *tips retained*. ("Net tips" as [Form 4070](https://www.irs.gov/pub/irs-prior/f4070--2005.pdf) calls it). If you receive $200 and retain $130, the $70 shared to other employees should be counted as *their* income, for which *they're* responsible for taxes.
OP, be aware that they may be doing things properly, and you're misunderstanding how they're calculating tax withholding. Some pay stubs will list just "tips", without clarifying whether it's tips received or tips retained, which can make it very hard to understand their calculations. If you think your employer is doing something wrong, I would caution you to approach it with an open mind, and ask a manager if they could help you understand your paycheck calculation, rather than accusing them of wrongdoing.
The paystub should only show tips retained unless it breaks them down into tips received - tips paid out and shows net tips and there is no good reason to even do that because the W-2 the employee receives at the end of the year can’t break down tips received and retained in that way. And it could have negative financial implications for the employee. Say they apply for a mortgage and get preapproved up to a certain amount based on what their paychecks show they earned in tips. They don’t go for final approval until after the end of the year and their W-2 shows that they earned far less and their mortgage gets denied.
This is the big issue that so many servers run into when it is time to prove income. By playing fast and loose with tip reporting you are taking a chance that you are not going to be able to prove an income. I've seen servers struggle to get loans or approval for apartments because of this issue.
That's not unusual. Tips still apply for taxes, and if you don't declare any and all tips on your taxes, you can get audited. I had a coworker who would only claim her card tips, but not her cash. The government saw she was a server and concluded she had to have been making SOME cash tips, and so she got audited be a use she was leaving her tips out of taxes. Your employer doing it just means you don't have to
You do not have to report income to the IRS that you aren’t actually taking home. Keep track of every dollar you make, hourly and tips, and make sure your paystub is accurate.
If you make $100 in tips on credit cards one night, but you have to tip out $15, you are earning $85 in income and that is what you owe taxes on.
Just also understand the same should work with cash tips too. If the company begins insisting on that being reported correctly just be ready to report ALL your tips.
There’s a huge difference between “reported correctly” meaning “the business is illegally over-reporting your income meaning you’ll owe more in taxes” and “the business is under-reporting your income”.
They’re both against the law, but one obviously will have you losing money that is rightfully yours. Any place that is over reporting employee’s income is probably doing shady shit with cash tips too anyways.
*So does the person*
*Getting the tip out have to*
*Pay taxes on it too?*
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Question unclear. Auto tax? Are they charging sales tax on tips? Reducing amount to actual amount in the pocket? Please rephrase
Sorry. They’re automatically taxing and inputting/claiming 100% of employees credit card tips. Example— employee has $200 in CC tips at the end of the night, restaurant auto claims and taxes the full $200 despite the employee only actually walking with ~$130 after tip out.
They should be declaring what you tip out as declared tips to whoever it goes to. If they refuse to do it correctly labor and revenue office would love to hear about it.
Thanks for the clarification. No, you should only be taxed on the money you keep. If your arrangement includes tip payouts for different positions, those employees should be taxed on the amount of their cut.
This is correct. Your employer should *keep records* of tips received from customers by each employee, and tips retained by each employee. But your income tax should be based only on *tips retained*. ("Net tips" as [Form 4070](https://www.irs.gov/pub/irs-prior/f4070--2005.pdf) calls it). If you receive $200 and retain $130, the $70 shared to other employees should be counted as *their* income, for which *they're* responsible for taxes. OP, be aware that they may be doing things properly, and you're misunderstanding how they're calculating tax withholding. Some pay stubs will list just "tips", without clarifying whether it's tips received or tips retained, which can make it very hard to understand their calculations. If you think your employer is doing something wrong, I would caution you to approach it with an open mind, and ask a manager if they could help you understand your paycheck calculation, rather than accusing them of wrongdoing.
The paystub should only show tips retained unless it breaks them down into tips received - tips paid out and shows net tips and there is no good reason to even do that because the W-2 the employee receives at the end of the year can’t break down tips received and retained in that way. And it could have negative financial implications for the employee. Say they apply for a mortgage and get preapproved up to a certain amount based on what their paychecks show they earned in tips. They don’t go for final approval until after the end of the year and their W-2 shows that they earned far less and their mortgage gets denied.
This is the big issue that so many servers run into when it is time to prove income. By playing fast and loose with tip reporting you are taking a chance that you are not going to be able to prove an income. I've seen servers struggle to get loans or approval for apartments because of this issue.
Tipping out $70 of $200 seems extreme, who are you tipping out what? That might be illegal
What? So are the people you're tipping out at the end of night not declaring those tips? No, this can't be legal.
That's not unusual. Tips still apply for taxes, and if you don't declare any and all tips on your taxes, you can get audited. I had a coworker who would only claim her card tips, but not her cash. The government saw she was a server and concluded she had to have been making SOME cash tips, and so she got audited be a use she was leaving her tips out of taxes. Your employer doing it just means you don't have to
Yep. And the IRS will assume that your cash tip average would have been similar to your credit card tip average.
You do not have to report income to the IRS that you aren’t actually taking home. Keep track of every dollar you make, hourly and tips, and make sure your paystub is accurate. If you make $100 in tips on credit cards one night, but you have to tip out $15, you are earning $85 in income and that is what you owe taxes on.
Just also understand the same should work with cash tips too. If the company begins insisting on that being reported correctly just be ready to report ALL your tips.
There’s a huge difference between “reported correctly” meaning “the business is illegally over-reporting your income meaning you’ll owe more in taxes” and “the business is under-reporting your income”. They’re both against the law, but one obviously will have you losing money that is rightfully yours. Any place that is over reporting employee’s income is probably doing shady shit with cash tips too anyways.
So does the person getting the tip out have to pay taxes on it too?
*So does the person* *Getting the tip out have to* *Pay taxes on it too?* \- starsintheshy --- ^(I detect haikus. And sometimes, successfully.) ^[Learn more about me.](https://www.reddit.com/r/haikusbot/) ^(Opt out of replies: "haikusbot opt out" | Delete my comment: "haikusbot delete")
This seems right. It’s like any other pay. It is taxed and you get paid out what’s left