How do I report tips when my employer does not deduct taxes from tips from my paycheck?

Question

my employer will not allow me to report tips to have taxes deducted from my paycheck. Is this Legal in Pa.? If so, is there a way I can fill out my W-4 form to save me from paying out at the end of the year? Can I guestimate how much I will make each pay period and enter that amount in the extra $$ withheld each pay box on the W-4 form? My employer is foriegn and is tax exempt I guess because they told me not to worry about reporting tips. They said I do not need to because it is a family owned business. Is there any possible way this is true? I have asked several other servers (that are not tax exempt) how they report their tips and they all said they don't. This really bothers me. What they do is their business but, I have a little girl and cannot afford to pay out at the end of the year. Any help or any ideas on where to get help would be greatly appreciated. Thanks to all in advance!!!!!!!!!!!

Answer 1

What your employer is doing is illegal. It goes against Internal Revenue Service rules.

It doesn't matter if your boss is not originally from the United States. All employers located in the United States must withhold taxes on their employees' tips. Restaurants are not tax exempt, and even if they were, they would still have to withhold taxes on their employees wages and tips.

When the IRS discovers that your employer is not withholding taxes on tips, they will be in huge trouble and owe the IRS major penalties. When they discover you're not including your tips with your income on your tax return, you will be in huge trouble too and owe the IRS major penalties.

If I were you, I would decrease the number of exemptions I claimed on my W-4. And I would keep a good record of the tips I received during the year, and add those tips to my income on my tax return. (Better yet, I would look for another job.) Good luck!

Answer 2

your employer is not tax exempt. he is running a US trade or business that has income effectively connected to the US. This means that he will be taxed on that income as will you. You must report the tips as income to the IRS. The method for doing that is to fill out the self-reporting slips that the employer is supposed to supply you. The corp will encounter problems with the IRS if it discouraging the IRS's collection of revenue. The reason cited that it is a family owned business means nothing. One person, 5 persons, 500 million person corp, related or not, will owe US tax in that situation and this owner is not an exception. I believe you question is how do you pay tax now instead of later, but it is actually better to pay the tax later if possible because of the time value of money. You should "guestimate" the amount of tax owed, and put that money into a savings account, then pay the tax at the end of the year and you have earned interest. Don't be afraid to ask the IRS either. They can actually be friendly and informative.

Answer 3

They are reporting tips = which means: - the tips get added into the paycheck, - the total employment taxes are calculated based on earnings (which is required by law) - then they subtract out the tips because those have already been paid. In California, you are paid $8 an hour + tips. The paycheck says "void" because the $8 per hour the employee earned is not enough to cover the entire taxes for the pay period. So there is $0 cash in the check

Answer 4

No, what your employer is doing is NOT legal. And he isn't tax exempt either, although he may be illegally evading taxes. Being foreign, or being a family owned business, doesn't relieve him of his obligations to handle taxes properly.

That said, yes you could estimate what you'll owe and change your W-4 to request additional taxes withheld.

The other servers who are just not reporting their tips are committing tax evasion, and could be in major trouble if the IRS catches up to them. And if the IRS catches up to the employer, they'll probably also catch the servers who are cheating on their taxes.

Answer 5

Here is the information about tips from the IRS publication 17. Your employer is not following the requirements.

All tips you receive are income and are subject to federal income tax. You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement.
Report your tips with your wages on line 1 of Form 1040EZ or line 7 of Form 1040A or Form 1040.

You must report tips to your employer so that: Your employer can withhold federal income tax and social security and Medicare taxes or railroad retirement tax.
Report to your employer only cash, check, debit, or credit card tips you receive. If your total tips for any one month from any one job are less than $20, do not report the tips for that month to that employer.

If your employer does not give you any other way to report tips, you can use Form 4070. Fill in the information asked for on the form, sign and date the form, and give it to your employer. To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244.

You must report all tips you received in 2007 on your tax return, including both cash tips and noncash tips. Any tips you reported to your employer for 2006 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.

Answer 6

be very skeptical any time anyone tells you that you need not declare income on your yearly taxes. any income is taxable and needs to be declared. the easy way to take care of your problem is to set aside ten to twenty percent from each paycheck, in a savings account, and at the end of the year you will have enough money. this, of course, takes some discipline, but it is not different than what the government is doing--investing your money until the end of the year. a good way to clear up any of these problems is to use the irs website. contacting them and asking them (anonymously or not) what you should do would be an excellent way to solve your questions.

Answer 7

Yes, adjust your number of allowances on the W4 so they'll withhold more to offset the amount they should be withholdng for tip income. I had a similar situation. I appreciate that you "give to Ceasar what is Ceasar's". Most people seem to think there's nothing wrong with cheating on taxes when it comes to cash tips, but they don't seem to appreciate that we all have to pay for our share of the roads, schools etc. that we all use. Good luck and God bless.

Answer 8

Tips are not only subject to income tax, but also FICA (Social Security and Medicare)

http://www.irs.gov/pub/irs-pdf/f4137.pdf

Follow the above link to find the form for unreported tip income.

The IRS will go after your employer to get their share of the FICA tax.

Answer 9

lol i think that's illegal. i had to watch a whole video and sign papers that i understood i had to report a certain amount of tips when i got my current job. if you report tips and they didn't, they will probably get in big trouble. i'd just wait and hope someone smart answers your question :)

Answer 10

1. At first stage if your tip income is $20 or less you are required to report tip income. Which i am not sure a case with you.

2. To save on taxes which is tax planning for future. I suggest to show tip income as other income on your 1040 tax return and invest the amount or equivalent to some IRA plan to nullify the tax and save for your future.

3. To guide you more we would be needing your complete details of Tip income/salary income and your personal status. You can write to me at: [e-mail].

Thanks
Ngelin