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I'm a waiter, what is the tax rate on tips?

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vectorz
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I'm a waiter, what is the tax rate on tips?  Reply with quote  

I just started a job as a waiter at a restaurant. Does anyone know what the tax rate on tips are?

From what I understood, I thought tips just count as part of my income. Let's say my tax % is 28%, and I made $100 in tips this week.. the tax I pay on that amount i made is ~$28?

However, my friend tells me that food tips are calculated by the government. He says he was a waiter and the way they calculate food tips is by taxing the amount of the meal, at a flat rate of 10%.

This does not make any sense to me. So in his scenario, if the meal was $100 and so they tipped me 15% at $15 tip, the government taxes me $10 of my $15 tip? Sounds idiotic, but he swears up and down that's how it works.

Can anyone clarify?
Post Thu Aug 25, 2005 9:16 pm
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Andrew
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I couldn't find anything about a flat tax for tips.

My wife used to wait tables and she's never heard of it either...?
Post Fri Aug 26, 2005 2:51 am
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mlathe
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I'm guessing this is in the US.

I always thought that tips were part of your Adjusted Gross Income (http://www.infoplease.com/ipa/A0005935.html). In that case at the end of the year you are *supposed* to add your wages and your tips, then all the income is taxed the same.

as for taxing the meal... i doubt it... do you keep track of the cost of all the meals that you serve? Probably not. And the government doesn't either.
--Matthias
Post Fri Aug 26, 2005 3:53 am
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vectorz
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Actually he showed me an article in which the US govt went in and tallied up a restaurant's credit card slips and tip info from those slips, and found that the employees of that restaurant were under-stating their tip amounts. The total stated amount by all the employees was at 4% of the total credit card slip sales, yet the tip amounts on the slips added up to 14%. The govt went ahead and held the restaurant liable for the difference instead of going after the employees.

So in essence, yes it seems they *can* and sometimes *do* keep track of the food sales in events they feel taxes are being under-stated on income taxes.

I'll ask him to give me the link again, and I'll post it here.
Post Fri Aug 26, 2005 5:27 am
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KathMorgan
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Actually you are comparing apples to oranges here. What you frined is talking about is what the government requires to business to "assume" you were tipped and hold out taxes accordingly. These are what sometimes show up on your W2 in the allocated tip box. This means the business has a set minimum amount of tips it has to assumes all tipped employees received, usually around 8%, and if you do not report at least that amount to your employer when you report your nightly (or monthly) tips, they tax you on it anyway.
From your standpoint on your tax return, you only have to add your tips in if there is something in the allocated tip box of your W2. Otherwise they are already included in box 1 for wages. Then you do a form 4137, which figures how much to add to your taxable income and how much social security and medicare tax (only your half) you must pay on it.
This is why it is very, very important to keep a good notebook record of your tips. If you can show you did not make as much as they say you did then you don't have to pay taxes on them. This is especially important if your business does tip sharing.
Post Fri Aug 26, 2005 9:09 am
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Andrew
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Thanks for the good info, Kathy!
Post Fri Aug 26, 2005 2:51 pm
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vectorz
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quote:
Originally posted by KathMorgan
Actually you are comparing apples to oranges here.


Correct, that particular response I made had nothing to do w/ the original question I was asking. I was only making a comment in reply.

Two totally different issues being discussed here.
Post Fri Aug 26, 2005 4:15 pm
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KathMorgan
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Your tips are taxed at whatever your regular tax rate is for yoor taxable income for federal tax purposes. If you have any allocated tips that you have to put on a 4137 then you also pay 7.65% (6.2% for SS and 1.45% for medicare) on those tips. This is the ss and medicare percentage that would have been held out by your employer and wasn't. Hope this helps with figuring you liability.
Post Fri Aug 26, 2005 11:57 pm
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vectorz
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Excellent. Thanks for clearing that up, Kathy!
Post Mon Aug 29, 2005 6:39 pm
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lowbrow
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Just a word of warning. I waited tables at a prominent sea food restaurant while I was in college. A few years after I had quit that job, myself and most of the waitstaff that had worked there got audited. Supposedly the restaurant was claiming 10% as our estimated tips off of our total sales. In reality I know I was making more like 18 or 19%. So eventually the IRS decided that we should have been claiming at least 13.5% and they taxed us on that as well as adding penalties. I was still in college and suddenly I owed $2000. Half of that being the tax and half being the penalty. It took me two years to pay that off. The restaurant swore they told each of us that they were only claiming the 10% and that we were supposed to add anything above that that we recieved. (they were also famous for withholding our creditcard tips for almost a month supposedly reaping the interest on them)

Some of the waiters (usually the full timers) fought it in court and got the penalties removed but after lawyer fees they ended up paying about the same amount as if they had just paid it all up front (and personally I'd rather the govt have my money than a bunch of lawyers).
Post Wed Aug 31, 2005 3:10 pm
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KathMorgan
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This is one of the reasons I stress to all my clients who work in tipped jobs to keep a written log daily of all tips they receive and keep those records with their tax files. As long as you can document your actual tips and your paid taxes on those you can usually win the day in an audit.
Post Wed Aug 31, 2005 6:30 pm
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