I work at a small restaurant and my manager told me to report my tips in an odd way?

Question

The restaurant I work at is small and locally owned. For my tips my manager told me to report 11% of all the money I collect from the customers for the meal (not including tips), except for the credit cards, on the credit cards I report 11% from the tips and not the money for the meal. I have been told this sounds a bit shadey, I mean I only make $2.65 an hour and after taxes it comes out to a dollar an hour, I would appreciate any help or comments on this. I live in Indiana.

Answer 1

Keep records of what you receive in tips, day by day.

The staff that receives tips must report to the restaurant what they received in tips each month. That amount, totaled from all waiters, is reported to the IRS. If the restaurant reports less than 8% of gross sales, the IRS tells the restaurant that the wait staff must pay enough to hit the allocated 8% that the IRS believes waiters earn. For example, the amount reported by the waiters equals only 7% of gross sales. The waiters must make up the difference.

HOWEVER, if you have daily records of your tips, and your tips hit or exceed the 8% of your gross sales, you will not be hit up for the missing tips. If you do not have records, you will be hit with the "allocated tips" that shows up on your W-2 form. You may legitimately claim all the tips you received, but if you cannot show records, you will be hit up for more to make up the difference that others in the restaurant did not pay.

This does not sound fair, but wait staff have under-reported their tips for decades and the IRS had enough. You will pay for the sins of others if you do not have good enough records of your own tips.

If the restaurant does report 8% of their sales as tips to the IRS

Answer 2

I agree with cubcowboy that you need to report all the tips from credit cards because of the paper trail, but it does get a little tricky with cash.

Indiana is a tip credit state which means that as long as you earn minimum wage when adding your tips to your base wage, your employer doesn't have to pay you more than the $2.65 per hour. If you don't earn minimum wage with your tips then more cash comes from your employers profits to pay you, so on the one hand I'm kinda surprised that he would tell you to do that. Servers who cost their employers extra don't usually keep their jobs long.

On the other hand, if you report all of your tips, then your base wage may not be enough to cover your tax liability which can be an accounting mess, especially for a small business if they don't have good accounting software, so maybe that's where he's coming from.

Since the IRS can't prove how much cash you take in you can get away with not reporting it all like with credit cards, but there can be drawbacks. One that I have seen many times is in the case of a work-related accident. If you report less than you actually earn and are injured on the job and unable to work, the time loss benefits paid to you while unable to work will be based on reported earnings, not your actual earnings.

I wish I could give you an answer, and not just more information to confuse you, but I hope this helps some. If your manager is approachable, maybe you could tell him you are confused and ask him to explain the reason for reporting tips this way.

Answer 3

If you don't make enough money in tips to make regular minimum wage, your employer by law has to pay you the difference. If all of your employer's tipped employees together don't report at least 8% of sales as their tip earnings, the employer is responsible for paying the difference. In general, it's far more likely that a waiter or waitress lies about how much he/she earned in tips than it is for an employer to force employees to work at a job where the pay doesn't add up.

Credit cards do leave a paper trail. Any company that's had a Sales Allocations audit knows that all tips listed on credit cards had better be reported to the penny. Cash payments are something else, though. As long as you report 8% of your total sales as your tip earnings, your employer's butt is covered.

It may be that your manager knows you make more than that in tips and told you that so that you won't have to worry about getting in trouble for underreporting your tip earnings. Legally, though, he can't force you to report more than you earned. And If you really don't make enough in tips to average out to $5.15 an hour you should consider a different restaurant/bar/occupation.

Answer 4

You need to report your ACTUAL tips received. NO EXCEPTIONS! Service employees have been prosecuted for underreporting of tip income and the penalties are severe if caught out. Look up the case on the Parker House in Boston about 30 years ago for an extreme example.

If you're actually getting less than 11% your employer is pulling a fast one on the state wage and hour board as he's trying to justify the sub-minimum wage he's paying you as being made up in tips. If an employer tells you to report anything other than the correct amount, report him to the IRS and your state's wage and hour board or employment commission.

Answer 5

DOn't be stupid, you must report all credit card tips as there is a paper trail. Cash is yours and it is none of your bosses' business what you are making in tips from cash.

Tip Reporting | Government & Legal | National Restaurant AssociationTip reporting rules can be confusing. Here are guidelines for both employers and employees. IRS tip agreements The IRS wants you to sign a tip agreement. ...
www.restaurant.org/legal/tips/


Restaurant Report - Accountant's Corner - Tip Tax TacticsOne of the biggest challenges facing restaurateurs is getting employees to report and pay taxes on their tips as required by the IRS.
www.restaurantreport.com/departments/ac_tiptactics.html

Answer 6

applebees does this also it does sound shadey you might want to look into it but my friend had this problem and applebees was not in the wrong the tips make up for the wage to make minimum wage now if ur's does not hen definitely report them

Answer 7

when I was waiting tables a few years back I had to total up all my table check and then claim 8 percent of the sales for income.
So lets say in one night I sold 500 bucks worth of food I had to claim the 8 % of that for income.
Our manager would total it for us by shift and also claim it for us.

I made 2.14 an hour.

Answer 8

Its actually none of your bosses business how much of your tips you report to the government. You are not making enough per hour for a server. Up in Ontario, Canada servers make $6.45 per hour, and some restaurant allow the servers to keep all their tips, and its up to them to claim them at the end of the year. Something sounds very fishy with your boss.

Answer 9

He is trying to avoid taxes. Been in that situation before. You don't want to go there.

Answer 10

how about you quit and get a real job that doesnt have a shady tip policy...there are plenty of places