Today TaxMama hears from Lindsey in Fort Myers, FL who says “I work for an hourly wage and tips. I keep a careful daily log of my tips. At the end of the year, if my employer doesn’t feel that I have claimed enough on tips, and they want to insure that they’ve paid enough on their tax portion, they will increase the claimed gratuities on my W-2, above what I made. Is this legal?
Well Lindsey,
IRS sets a minimum percentage that employers must add to wages to account for tips. It’s an approximate amount for employers to use, when employees don’t keep daily logs. IRS established this procedure because they came to realize that most people earning tips weren’t reporting a substantial part of their income.
However, if you’re keeping a detailed, daily log and you turn that in to your employer, he should be able to use that to report your actual tips.
IRS Publication 531 explains how to keep the daily record. https://www.irs.gov/pub/irs-pdf/p531.pdf
It explains about how to use a booklet IRS prints out called Form 1244 https://www.irs.gov/pub/irs-pdf/p1244.pdf . Keep a duplicate for your own file. And give him the original every month.
Remind your boss that the tips you’re reporting are only the tips you get to keep, after you’ve shared the money with hostess, and kitchen staff. That’s all that should be included on your W-2.
Once you sign that booklet each month and give it to him, he’s off the hook as far as IRS liability for your unreported earnings goes. He shouldn’t be adding any more income just because HE feels it ought to be more.
And, remember, you’ll find answers to questions about payroll and all kinds of tax issues, free. Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- IRS Publication 531 :: Reporting Tip Income
- IRS Publication 1244 :: Employee’s Daily Record of Tips & Report to Employer
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