Understanding the complicated world of taxes is difficult enough for a regular paycheck.
Adding tips into the mix just makes everything more confusing.
Failing to properly report the full amount of tips you are given can get you into a lot of trouble with the IRS.
However knowing what as an employee you need to report or what as the business owner you are responsible for can sometimes be a fine line.
Here are some tips and tricks for knowing how to report your tips on your taxes.
"Tips" are defined by the federal government as "a gift or a sum of money tendered for a service performed or anticipated.
" Generally if an employee makes over twenty dollars in tips a month, they must report them.
After they finish working for the night, a waiter must record how many tips they made for their employer so that the proper tax amount can be withheld from their next paycheck.
Social Security Taxes "on the gross amount of tips and wages for all employees" is paid by their employer.
Employers should keep track of the tips for every sale made in their establishment each evening.
This way, they can remit the proper amount to the government.
If employees do not report all of their tips to their boss, the employer can be held liable for "the employer's share of the social security and Medicare taxes on the unreported tips.
" It is your job, as employer to withhold and pay taxes with the information you do have from your employee.
If you have more than ten staff members working on a typical day than you fall into the category of a "large food or beverage establishment" and you are required to allocate or distribute tips to your employees if the amount of tips reported is less than eight percent of gross sales.
If the amount of tips is larger than eight percent, you are not required to allocate, but you must still file the "Employer's Annual Information Return of Tip Income and Allocated Tips" form.
Taxes should still be withheld and paid on allocated or non-allocated tips.
Adding tips into the mix just makes everything more confusing.
Failing to properly report the full amount of tips you are given can get you into a lot of trouble with the IRS.
However knowing what as an employee you need to report or what as the business owner you are responsible for can sometimes be a fine line.
Here are some tips and tricks for knowing how to report your tips on your taxes.
"Tips" are defined by the federal government as "a gift or a sum of money tendered for a service performed or anticipated.
" Generally if an employee makes over twenty dollars in tips a month, they must report them.
After they finish working for the night, a waiter must record how many tips they made for their employer so that the proper tax amount can be withheld from their next paycheck.
Social Security Taxes "on the gross amount of tips and wages for all employees" is paid by their employer.
Employers should keep track of the tips for every sale made in their establishment each evening.
This way, they can remit the proper amount to the government.
If employees do not report all of their tips to their boss, the employer can be held liable for "the employer's share of the social security and Medicare taxes on the unreported tips.
" It is your job, as employer to withhold and pay taxes with the information you do have from your employee.
If you have more than ten staff members working on a typical day than you fall into the category of a "large food or beverage establishment" and you are required to allocate or distribute tips to your employees if the amount of tips reported is less than eight percent of gross sales.
If the amount of tips is larger than eight percent, you are not required to allocate, but you must still file the "Employer's Annual Information Return of Tip Income and Allocated Tips" form.
Taxes should still be withheld and paid on allocated or non-allocated tips.