How do you file for taxes when you work at a bar for tips?

Question

I've been working at a bar for some time now, everything I make, I make in tips. Nothing is recorded and I dont have a regular wage.

Sometimes the tips vary but either way it pays the bills.

I started a savings account about the same time I started the job. I recieved a statement from the bank saying I gained $50 in interest.

Im told I must file this as income with the tax people... but I dont want to pay and arm and a leg to state what I gained in interest for my savings... its so small!

I've also been told because I work at a bar for tips alone, I dont need to file. Kind of like antique dealers, or people who do yard services.

Any advice on this?

Answer 1

Legally, you are supposed to file. But, there is no way the IRS will know you have that income. My family and I are all "self-employed" and everything we do is documented whether received as cash or not.
People that do yard services are supposed to file taxes also, but I'm sure many of them don't.

Depending on how much you make at your job, you could even get money back in Earned Income Credit. It is mainly for those with children, but those without children can also qualify.

There may be other refundable tax credits that you may qualify for too.

Taxes are not as scary as people think!

Answer 2

There are several issues here. First off, there is no such thing as a legal "tips only" job. You MUST be paid your state minimum wage. This is usually lower than the prevailing minimum wage if the employer can document that the combination of your wages and tips meets or exceeds the minimum wage. Contact your State Labor Board to resolve this issue and get the back wages due to you.

Second issue: Reporting of tip income. The IRS requires you to report your tips to your employer in any month that you have more than $20 in tip income. The employer is required to withhold taxes (Social Security, Medicare, Federal Income and State Income) based upon your hourly wage and tips reported. Failure to report tips will cost you a 50% penalty tax on the Social Security and Medicare taxes when you file your income tax return.

If your employer is not withholding the taxes from your tips and you are not reporting them to the employer, you are BOTH committing tax fraud and could be subject to further penalties and interest along with possible crimminal sanctions. The crimminal sanctions are more likely for the employer but you will find yourself with a very expensive tax debt situation yourself.

You should report the tax fraud to the IRS. They do pay rewards if the case results in the collection of additional tax and if your "employer" has been doing this for a while it's likely that he will owe substantial payroll taxes at the very least.

You yourself DO need to file a tax return and list all income from all sources. Whoever told you that you don't is simply wrong. As I mentioned earlier, there will be a 50% penalty tax on the unpaid SS and Medicare taxes along with the income tax that you owe.

There is also a good possibility of additional penalties and interest for underpayment of taxes. Income taxes are due when the income is received, NOT on the filing deadline. For wage-earners, that's handled through withholding from your pay. Self-employed people must make quarterly estimated tax payments to pre-pay their tax liability. If you have not had enough tax withheld during the year or made the required estimated payments, you could be subject to penalties and interest for underpayment of taxes.

Answer 3

There is a section for tips on page 1 of the 1040. Keep precise records should you be audited. (The IRS is aware that bartenders make a lot in tips, so it is probably not wise to leave out this info.) The IRS may expect you to pay estimated taxes 4 times a year, as do people with variable incomes.

Better get some tax advice from a specialist.

Answer 4

Doesn't matter whether the IRS can or will find out or not. The law says you must pay taxes on all tips and all interest. Maybe if everybody obeyed the law we wouldn't have so much of a problem with deficits (that and if we stopped giving tax breaks to rich people).

That said, make sure you get all the deductions and credits coming to you.

Answer 5

well do you get a W2 from the bar you work at if so you should have social security taken out and medical and all that other stuff which will get you money back, and you have to claim your tips as income, i used to work at one and all i did was all the tips recorded on a credit card and maybe 10% of cash, just so it looks right on paper, either way you still have to file and you are suppose to claim the tips as income. doing yard work and other stuff not affiliated with a company is fine not to claim, but if you work for a company then you can get in alot of trouble for not filing.