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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22642
Experience:  Taxes, Immigration, Labor Relations
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Im a server at a restaurant. I get an hourly pay of 2.13/hour.

Resolved Question:

I'm a server at a restaurant. I get an hourly pay of 2.13/hour. All year, my paychecks read "0 dollars and 0 cents." I was told that my 2.13/hr was going toward taxes so I wouldn't owe a ton of money. My friend who works at the same restaurant did off-property catering and special events that paid $8-$10/hr, and she didn't receive those funds on her paycheck either, since they were supposed to go toward taxes. This year, according to my W2s, I owe about 2K to the federal and state government. My friend also owes about the same amount, since we worked about the same amount of hours and made the same amount of tips. This is strange to me, because I've worked as a server for years, and I've always received a refund as opposed to owing a large sum of money. When I asked the accountant at my restaurant if there were any errors on my W2s, she replied:

Yes your $2.13 wage does go to taxes and that is why you usually do not receive a paycheck. However, your tips were great—which you have to pay taxes on as well. There are four taxes that come from your wages-Medicare, Social Security, Federal and State. All Medicare and SS taxes must be satisfied before any amounts will be paid toward federal and state taxes. You did not have enough wages to pay your federal and state taxes, so unfortunately you will owe them.

Am I being taken advantage of? I really don't feel like I should be owing this much money, especially as a server.
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!

Customer :

Hello

Customer :

Are you a computer or a real person?

LEV :

Can you provide amounts from each box reported on your W2 form? I will estimate your tax liability and explain the situation.

LEV :

I am a real person... LOL...

Customer :

just checking! :)

Customer :

well I have two w2s for the same restaurant

Customer :

do you need the EIN number?

LEV :

give me numbers from each.

LEV :

no - just amounts and box numbers.

Customer :

1. 12160.73

Customer :

2. 257.12

Customer :

3. 1187.42

Customer :

4. 753.97

Customer :

5. 12160.73

Customer :

6. 176.33

Customer :

7. 10973.31

Customer :

8. 0.00 9. 0.00

LEV :

no need boxes with zeros

Customer :

ok

LEV :

just those with positive amounts - do you see now that I am real...LOL

Customer :

so that's from the first W2, are you ready for the 2nd?

LEV :

go ahead

Customer :

1. 8727.70

Customer :

2. 161.24

Customer :

3. 828.92

Customer :

4. 541.12

Customer :

5. 8727.70

Customer :

6. 126.56

Customer :

7. 7898.78

Customer :

that's it

LEV :

Give me some time and I will be back with explanations.

Customer :

alright, thank you

LEV :

So – I will combine both W2s together


 


1. 12160.73 + . 8727.70 = $20888 – that is your total taxable income – assuming you are single, not a dependent, standard deduction, no dependents, no other deductions or credits – your estimated income tax liability would be $912


2. 257.12 + 161.24 = $418 – that is the amount of income taxes withheld from your paychecks – that means you owe additional income tax $912 - $418 = $496


 


7. 10973.31 + 7898.78 = $18872 – that is the amount of tips you reported to your employer


 


3. 1187.42 + 828.92 = $2016 - that is the amount of wages paid to you by your employer – most likely you did not received it because you must pay taxes on that income and on tips


 


4. 753.97 + 541.12 = $1295 – that is the amount social security taxes withheld from your wages – these cover wages as well as reported tips.


6. 176.33 + 126.56 = $303 - that is the amount Medicare taxes withheld from your wages - these also cover wages as well as reported tips.


 


So your wages paid by your employer $2016 went to pay $1295 social security taxes, $303 Medicare taxes and $496 income taxes withholding – that is why your paycheck was zero.


 


So far – please verify with your tip’s log if the amount $18872 of tips you reported to your employer is correct.


Also verify if you had any other deductible expenses – for instance if you paid for education.


Otherwise you estimated tax liability is $496.

LEV :

Please let me know if any clarification needed.

Customer :

i don't know where to find my "tips log"

Customer :

both my W2s added together from box 1 (wages, tips, other comp) totals to $20888.43

Customer :

is this the same thing as how much i made in tips all year

Customer :

?

LEV :

That a daily log where you record your tips - you should have it in your possession.

Customer :

other than that, i have no other record of my tips i made this year. i do not have a tip's log

LEV :

But otherwise - does that amount of tips look correct?

Customer :

we didn't have that in our restaurant, but i did record how much i made in tips monthly on a scratch piece of paper that i kept

Customer :

the amount looks about right

Customer :

based on what i recorded on my own

LEV :

Is that amount which you reported to your employer during the year?

Customer :

we never had to report anything to our employer. keep in mind, this restaurant is locally owned and very unorganized

Customer :

we were told not to claim any of our cash tips in the computer system

Customer :

our employer never asked to be informed of our tips at the end of the night

LEV :

If you did not report tips - your employer should allocate tips and report them in the box 8

Customer :

there is no amount in box 8 for either form

LEV :

As tips are reported in the differntly - means you reported them - that what I read in your w2.

LEV :

However - that doesn't change the fact - tips income is taxable and as long as amounts are correct - that is a correct tax liability.

Customer :

I'm sorry, I still don't understand. Does this mean that I should only owe $496 instead of 2K?

LEV :

Because tip amounts in your records and reported on the W2 form are about the same - seems that your employer knows your tip income.

LEV :

I am not sure where you get $2000?

Customer :

I have done my taxes using turbo tax and then my mom went through them again with a different program. we both got the same results: i owed around $1400 to fed, and $550 to state. we haven't filed yet, though.

Customer :

also, my friend who i mentioned in the question got the same results when her father did them for her

Customer :

around $1400 to fed, and $550 to state

LEV :

Are you a dependent of your parents?

Customer :

yes

Customer :

and so is she

LEV :

Does that mean your parents claim you as a dependent on their tax return?

Customer :

yes

LEV :

In my assumptions above - I mentioned "not a dependent" - as you are a dependent - your tax liability will be a little higher..

Customer :

a little, as in $1500?

Customer :

i just don't understand how i've come to owe this much all of a sudden

Customer :

i've never had to owe money to taxes, in fact i've received a refund every year

Customer :

ive been a dependent and a server, nothing has changed

Customer :

this is why we're concerned, we just want to make sure i'm not being taken advantage of. i'm not going to pay this until im positive it's all correct. if that is the case, then my employer was misleading us

Customer :

we were told we wouldn't have to pay a lot at the end of the year because our 2.13 an hour would cover it

Customer :

so i never worried about it, until now obviously

LEV :

Because you are a dependent - your parents will take an exemption for you and you will not be eligible for Making Work pay credit - your overall estimated income tax liability will be $1860 - $418 (withholding) = $1442

LEV :

If you want to compare previous year - I need information from your W2s for that year.

Customer :

let me see if i can find them

Customer :

in 2009, i only received one W2 from the restaurant

Customer :

1. 5345.09

Customer :

2. 279.17

Customer :

3. 772.87

Customer :

4. 331.39

Customer :

5. 5345.09

Customer :

6. 77.51

Customer :

7. 4572.22

LEV :

Just compare box 1 for 2009 - your total income was $5345 - and for 2010 - $20888 - when you made 4 times more...

Customer :

yes

Customer :

i only worked for them 6 months out of that year

LEV :

Does that explain the difference?

Customer :

i suppose, but i still don't understand why other servers i've spoken to who have made about the same in tips as me received paychecks over the year, as well as a tax refund

Customer :

even when they are dependents of their parents

LEV :

I will be glad to answer if you give the information from W2s...

Customer :

ha, well unfortunately that's not an option

LEV :

So - we may just guess that there tips are not reported on the W2s...

Customer :

do you believe there was anyone at fault for misleading us throughout the year?

Customer :

how should i have gone about to avoid paying this much?

LEV :

I will not advise you to earn less.... As long as you have an income - there will be tax liability - the more you earn – the more your tax liability will be - there is nothing we may do with that.


You may pay less if you are not a dependent - but most likely your parents will pay more on their tax return.


You may use your tips income to pay estimate taxes during the year - so you will not owe at the tax time.

Customer :

ok

Customer :

just to clarify, when you said my estimated income tax liability will be $1860 - $418 (withholding) = $1442

LEV :

Sorry - I may not say - here are your money - just go and get them...

Customer :

?

LEV :

That is your federal tax liability.

Customer :

not including state?

LEV :

That what you need to pay to the IRS

LEV :

I do not have state calculator handy.

Customer :

oh, ok. well i'm assuming it will be what we've come up with, around $550.

LEV :

To cal;culate state tax liability - the state tax return should be filled

LEV :

Most likely - that is correct.

Customer :

so the more i make in tips, the more money i owe. that is really frustrating.

Customer :

that is basically saying i have to work a whole month for free, since i make an average of $2000/month

Customer :

anyway, thank you for your help

Customer :

i was hoping there was a way around this, but there isn't.

LEV :

Tax rates are progressive in the US - it might go up to 35%

LEV :

You are in 15% tax bracket

Customer :

i don't know what that means

LEV :

In US we have progressive tax - means - the tax rate increases as the taxable income increases. The more you earn - the high your percentage tax rate. If you earn below the threshold - you do not pay any taxes.

LEV :

Foy you as a dependent - the threshold is $5700 (fro 2010)

LEV :

You may see federal tax brackets here - http://www.moneychimp.com/features/tax_brackets.htm

Customer :

thanks

LEV :

so each dollar you earn above your current income will be taxed as 15% rate.

Customer :

ok i understand

Customer :

i think i have everything i need, thank you for your time

LEV :

I wish you the best. I do not think it is a problem to pay taxes as long as you earn the money.

Customer :

thank you

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22642
Experience: Taxes, Immigration, Labor Relations
Lev and 9 other Tax Specialists are ready to help you

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