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I work as a server in California and I have a question about…

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I work as a...

I work as a server in California and I have a question about declaring tips

Accountant's Assistant: Have you talked to a CA lawyer about this?

No

Accountant's Assistant: What steps have you taken so far?

Asked friends that manage restaurants

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My employers says that can force me to claim 100% of tips revived not taking into account that I tip out over 30% of what I take in causing me to pay taxes on income I did not earn

Submitted: 28 days ago.Category: Tax
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Answered in 3 hours by:
3/25/2018
Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 28 days ago
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,029
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Tax Professional: taxmanrog, Certified Public Accountant (CPA) replied 28 days ago

Unfortunately, your employers are correct. Under the IRS tipping rules, they need to report all tips that you receive. So when you take a customer's debit card, and they put your tip right on the slip, that tip is paid to you, and your employers report it on your W-2.

To make it worse, the IRS has a policy that it will enter with restaurants, and an "understanding" with others, where if they make a good effort to comply and report all tips, the IRS will not audit them on this issue.

The amount that you tip out to the bussers, the bartenders, etc., is technically deductible as an employee business expense. So if you are not able to itemize your deductions for 2017 and before, you cannot take advantage of this, and you will wind up paying income tax on the entire amount received. For 2018 and after, you cannot deduct employee business expenses, so you will also pay on income you do not receive.

You should try to convince your employer to deduct your tip-outs from your tips, and to report them on the employees who receive the tip-outs.

I hope this answers your questions. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great weekend!

Roger

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