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Lev
Lev , Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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Do servers usually owe money on their taxes?

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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/hour 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/hour, and she didn't receive those funds on her paycheck either, since they were supposed to go toward taxes. This year, according to my W-2s, 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 W-2s, 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: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

Expert: Lev replied 5 years ago.

Hi and welcome to JustAnswer. Can you provide me with the amounts from each box reported on your W-2 form? I will estimate your tax liability and explain the situation.

Customer: Well, I have two W-2s from the same restaurant. Will you need the EIN?

LEV: You can give me the numbers from each. No, I will not need the EIN - you can just provide me with the amount and box numbers.

Customer: 1. 12160.73

2. 257.12

3. 1187.42

4. 753.97

5. 12160.73

6. 176.33

7. 10973.31

8. 0.00

9. 0.00

That's it from the first W-2, are you ready for the second?

LEV: Yes, go ahead.

Customer: 1. 8727.70

2. 161.24

3. 828.92

4. 541.12

5. 8727.70

6. 126.56

7. 7898.78

That is it.

LEV: So - I will combine both W-2s together.

1.1. 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 receive it because you must pay taxes on that income and on tips.

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

6. 176.33 + 125.56 = $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, your estimated tax liability is $496. Please let me know if you need any clarification.

Customer: I don't know where to find my "tip's log". Both of my W-2s added together from box 1 (wages, tips, other comp) totals $20888.43. Is this the same thing as to how much I made in tips all year?

LEV: That is 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. And, yes that amount looks about right. 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. We were told not to claim any of our cash tips on the computer system. 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 Box 8.

Customer: There is no amount in Box 8 for either form.

LEV: As tips are reports in the differently - means you reported them - that's what I read in your W-2. However, that doesn't change the fact - the tips income is taxable and as long as the 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 W-2 form are about the same - seems that your employer knows your tip income. I am not sure where you get $2000.

Customer: I have does 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 Federal, and $550 to state. We haven't filed yet, though. Also, my friend who I mentioned in the question got the same results when her father did them for her - around $1400 to Federal and $550 to state.

LEV: Are you a dependent of your parents?

Customer: Yes - 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? I just don't understand how I've come to owe this much all of a sudden. I've never had to owe money to taxes, in fact I've received a refund every year. I've been a dependent and a server, nothing has changed. 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 I'm positive it's all correct. If that is the case, then my employer was misleading us. We were told we wouldn't have to pay a lot at the end of the year because of our $2.13 an hour would cover it. 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. If you want to compare your previous year - I will need your W-2s for that year.

Customer: In 2009, I received one W-2 from the restaurant.

1. 5345.09

2. 279.17

3. 772.87

4. 331.39

5. 5345.09

6. 77.51

7. 4572.22

LEV: Just compare Box 1 for 2009 - your total income was $5345 and for 2012 - $20888 - when you made four times more.

Customer: Yes, I only worked for them 6 months out of the 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 even when they are dependents of their parents.

LEV: I will be glad to answer if you can give me the information from those W-2s.

Customer: Well, unfortunately that's not an option.

LEV: So - we may just guess that their tips are not reported on their W-2s.

Customer: Do you believe there was anyone at fault for misleading us throughout the year? How should I have gone 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: Okay, just to clarify, when you said my estimated income tax liability will be $1860 - $418 (withholding) = $1442?

LEV: Yes, that is your Federal tax liability.

Customer: This is not including state?

LEV: That is what you will need to pay the IRS. I do not have a state calculator.

Customer: Oh okay. I'm assuming it will be what we've come up with - around $550.

LEV: To calculate state tax liability - the state tax return should be filled. Most likely - that is correct.

Customer: Okay, thank you for your help.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience: Taxes, Immigration, Labor Relations
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