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Regarding declaring tips for taxation purposes, what is the

Customer Question
employer's obligation to determine what...
Regarding declaring tips for taxation purposes, what is the employer's obligation to determine what an employee should declare?
Submitted: 8 years ago.Category: Employment Law
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Answered in 13 minutes by:
8/20/2009
Employment Lawyer: Marsha411JD, Lawyer replied 8 years ago
Marsha411JD
Marsha411JD, Lawyer
Category: Employment Law
Satisfied Customers: 20,417
Experience: Licensed Attorney with 29 yrs. exp in Employment Law
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HelloCustomer

Technically an employer must report any tips that the employee reports to them that are over $20 per month. It is ultimately the employees legal duty to report their tips to you each month and the IRS when they file their income tax return. As an employer, assuming that you are in the food and beverage business you can also participate in the Attributed Tip Income Program. You can get more details about the program and reporting requirements via the IRS website at: http://www.irs.gov/taxtopics/tc761.html. Each employee must report their tip income over the $20 to you by the 10th of the following month. If they have received tips via credit card charges, you will already have some of their tip amounts that you can use to calculate all withholdings. For the employees, they can look at IRS pub. 531 for details on their duties to report.
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Customer reply replied 8 years ago
may i ask a followup? this is colorado, and i'm talking about a business that pools all tips and allocates to service/bar staff... staff will tend to only report 10% of sales for tax purposes, but how does that relate to credit card charges and any exposure the employer bears? My real concern is what should the employer be doing for these credit card tips where there is obviously a record of what the tip was? i want to protect the company and wonder if we should make sure we report 100% of credit card tips?
Employment Lawyer: Marsha411JD, Lawyer replied 8 years ago
HelloCustomer

At a minimum you must report the 100% of the credit card tips allocated to each employee. In the case of pooling of tips, the employee must only report the portion that they retain. So, if for example the employee generally only reports 10%, and their credit card tips after pooling amount to less than 10%, then you would ask them if they have any tips to declare over the 10%. If not, then you withhold up to the 10%. If the amount is over 10%, then you must withhold for the actual amount.
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Customer reply replied 8 years ago

would it be appropriate to "tell" the employee what to declare (regarding 100% of the credit card tips) to ensure 100% are being declared? Staff would be entering the amounts in the time card system nightly as they prepare to clock out.

 

thanks so much for all this....

Employment Lawyer: Marsha411JD, Lawyer replied 8 years ago
Hello again,

You need to tell them that they must declare their credit card tips because you are going to automatically withhold that amount. If they end up not declaring those tips at the end of the year on their income tax returns, and you have reported them, they will face an IRS penalty and maybe an audit.
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Customer reply replied 8 years ago
awesome! thanks...
Employment Lawyer: Marsha411JD, Lawyer replied 8 years ago
You're welcome.
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