The tip money must take off 20% tax ?? (Chicago: sales, credit card)

[hqduc2012]

Hi everybody,

I have a question about the tip money give from customer

It will take off 20% tax for government. Is it right or wrong? and WHY ?

Thanks and happy new year.

[Avengerfire]

I have no idea if you are a server, customer, or employer. I cannot understand your English well enough to answer.

[Drover]

I don't include tax when calculating the tip. The tax was not value added by the establishment so there is no need for a gratuity based on something they did not provide.

[hqduc2012]

Thank for your answer

I will talk again my question.

My boss take off 20% of tip money (in ATM card) before he pay for me.
He told that, He must take 20% of tip money (from ATM card of customer) to pay tax for government.

I don’t know more about rule of law tip money.
So, is it wrong or right? Please tell me web site had talk about rule tax of tip money.

Thank again.

[GoCUBS1]

Are you asking about paying income taxes on your tip wages? Are you a waiter/waitress?

[Granny Sue]

Ok, I get it.

Yes your employer can take taxes out of your tips.

This will all show up on a W-2 form after the end of the year.

It will aid you when filing your taxes.

[GoCUBS1]

I haven't been a waitress since college but that sounds about right. Check the IRS site for specifics on how tip income tax is calculated (and reporting requirements)...

www.irs.gov

[Thepreacherswife]

Originally Posted by hqduc2012

Thank for your answer

I will talk again my question.

My boss take off 20% of tip money (in ATM card) before he pay for me.
He told that, He must take 20% of tip money (from ATM card of customer) to pay tax for government.

I don’t know more about rule of law tip money.
So, is it wrong or right? Please tell me web site had talk about rule tax of tip money.

Thank again.

This is really an income tax question and not a Chicago question.

If you work as a restaurant server, your tips are subject to U.S. federal income tax just as your paycheck is subject to income tax. They are also subject to payroll taxes (for social security and medicare), as is your paycheck. And they are subject to Illinois state income tax.

Because under-reporting of tips is a big problem in the restaurant industry, the U.S. tax authorities (IRS) are pretty strict with restaurant owners about the reporting of tips. There are a number of ways for restaurant owners to stay on the good side of the IRS when it comes to tips, including withholding. So, the restaurant owner is trying to make his/her life easier by withholding on credit card tips since cash tips are the ones most likely to be under-reported.

In a way this could ultimately make life easier for you so you don't wind up with a big tax bill at the end of the year for your tip income. When you received your Form W-2 from your employer at the end of the year, the taxes that have been withheld from your credit card tips will be included along with your credit card tip income. So when you go to file your income tax return you will already have credit for the taxes your employer withheld from your paycheck and your credit card tips. You will likely either pay very little tax when you file your return or possible receive a refund if the taxes withheld were more than the tax you owed.

As far as the amount, the payroll taxes are 7.65%, Illinois state tax is 3% and federal income tax for most people is between 10% and 15%, so 20% is probably about right. If it's too much you will eventually get a refund.

Here's a couple of IRS publication on tips for employees:
http://www.irs.gov/pub/irs-pdf/p531.pdf
http://www.irs.gov/pub/irs-pdf/p3148.pdf

Hope this is helpful.

[Chicago60614]

Very few places actually take out withholdings for tips though. I guess the establishments just eat that money since they do have to calculate tips on their payroll.

I think the lowest you can get away with is 10% of sales before they come up and start asking. I know we just let the workers walk away with everything, and then we calc 10-15% of the total sales that week and divvy that up based on hours worked for tax purposes.