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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2339
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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what percentage in taxes are taken out of waitress tips

Customer Question

what percentage in taxes are taken out of waitress tips
Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.
HiCustomerbr />
Thank you for using justanswer. Since you are supposed to report all of your tips to your employer so that he can pay his portion of the payroll taxes on them (social security, Federal & State withholding, unless you receive <$20/month in tips) they are treated the same as your base wage with the same amount of taxes withheld with the exception of medicare tax.

If you do not report these tips to your employer, then you would need to file Form 4137 Social Security and Medicare Tax on Unreported Tip Income. This form has
good information re: reporting requirements for IRS purposes. The problem with not reporting your tips to your employer as you earn them is that they are counted as income regardless and without reporting them to your employer, there is not Federal or State tax withheld on that money, and I've seen waitresses who earn quite a bit in tips, and had they not reported them to their employer, they would have had a balance due to the IRS at the end of the year.

Whether you report these tips to your employere so that he can withhold the proper taxes, or you choose to pay your half of the Social Security and Medicare tax at the end of the year, the most important thing to remember when dealing with tip income is to keep accurate records, as some resturants, when their employees do not report their tips (or the employer feels they are under reporting their tips) may choose to include something called "allocated tips" on their W2. This is a practice I don't see often anymore, but basically, the resturant knows from past expierence that their waitresses overall generally make a certain % of the cost of the meals, so if they feel that you have grossly underreported your tips, they can "allocate" an amount to you, and you would need your records to prove otherwise. As I said, I RARELY see this anymore, and the Form 4137 I referred you to earlier covers this pretty well. I'm just trying to impress on you the need for keeping good records.

I hope this helps.

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