TIP EMPLOYEES

[JHAYMAKER]

My understanding is that many tipped employees have to "tip out" or share their tips with say a bartender or a bar back.

so if a server gets $100 in tips they maybe give the bartender $10 and keep $90.  In this example the employer should be reporting $90 taxable on the servers W-2 and $10 on the bartenders W-2.

I have a new client who claims the way it  works is that the entire $100 is reported on the servers w-2 and they then take a deduction on form 1040 for the $10 they tip out to the bartender.

I cant think of anyplace that $10 could be deducted? maybe 2116 in the old days.  but not now.  I  believe the employer may be doing this incorrectly.

can anyone confirm my understanding is correct and that the only amount that should be showing up on the servers w-2 is thee $90 net that they got to keep?

 or confirm that the employer is correct and where the deduction  should be reported for the $10?

 

thanks

jeff

[DANRVAN]

On 5/14/2020 at 12:00 PM, JHAYMAKER said:

I have a new client who claims the way it  works is that the entire $100 is reported on the servers w-2 and they then take a deduction on form 1040 for the $10 they tip out to the bartender.

That is not right.  The server's reported tips are reduced by the amount paid to the bartender.  The bartender in return reports his share.

That is explained in pub 531:

"If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Don't report to your employer any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees."

Also see RR 76-231.

[NECPA in NEBRASKA]

I had a client call me and ask if his manager could take away tips from the hosts and give them to another host and make the original hosts claim the income. I told him that was totally not correct. His manager said that the other guy wasn't making as much and if he claimed the tips, it would come out of his unemployment. I can't believe the stuff these people make up.