Tip Reporting 101

As if the restaurant business was not hard enough, complying with IRS tip reporting rules is one of the most difficult and annoying tasks facing restauranteurs! This is truer today than a decade ago as the IRS is accelerating its efforts to capture previously lost revenue in the form of income and FICA tax. As a restaurant owner you should therefore be aware of your responsibilities regarding the reporting of your employee's tips.

The bottom line is this... restaurant employees are required to report and pay taxes on all their wages including tips. Since most tipped employees receive a majority of their income in the form of "cash" tips, it is no wonder that they are reluctant to fully report this income. It is one of the reasons that working as a waiter in full service restaurant can be so appealing. Where else can many of these folks make a hundred plus dollars in cash for five or six hours of work? To make matters worse the restaurant owners are thrust in the middle because they are responsible for withholding Federal and State income tax from employee wages and for matching the FICA tax. So the employer and employee are both caught up in the same conundrum, and each has its own tip-reporting responsibilities.