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Your Tip Earnings And Taxes
By: Richard Chapo
If you work in a service where you get tips, guess what? The IRS expects you to
report them and pay taxes on them.
Your Tip Earnings and Taxes
The internal revenue service takes a very simple approach to tips. It views all
tips you make in your job as taxable income that must be reported and for which
taxes must be paid. Put another way, the IRS has a simple but brutal view
towards taxes
Now tips come in different forms. Some are received directly from customers
while others are automatically added to the customer’s bill. The IRS takes the
position you must report and pay taxes on both amounts. This also includes taxes
you earn through any group splitting where all tips are collected together and
then split amongst the employees. On top of this, the IRS also takes the view
that any non-cash tips such as tickets to something are also income that should
be reported and taxes paid on. Put another way, the internal revenue services
gets you coming and going.
To make things a little more brutal, the internal revenue service requires you
to take some steps in reporting tips. If your tips total $20 or more in any
calendar month from a single job, you are supposed to report the total to the
employer by the 10th day of the next month. The employer is then supposed to
withhold federal income tax, social security and Medicare taxes from your
paycheck. Keep in mind that the failure to do so can lead to the placement of a
50 percent penalty on your taxes. Obviously, the IRS is fairly serious about
getting its money.
Tips paid to waitresses, bartenders, barbacks and so on are a hot spot with the
IRS and always have. Since tips tend to be given in cash form, the potential for
forgetting to report them is particularly high. The IRS seems to think so and
has shown a generally aggressive attitude on the subject. If you indicate you
are a waitress or bartender on your tax return, but fail to report any tip
income, it could be audit time.
About the Author:
Richard A. Chapo is with http://www.businesstaxrecovery.com - recovery of
business taxes through tax help and tax relief. Visit http://www.businesstaxrecovery.com/articlesto read more business tax articles.
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