Tip that!

February 24, 2013 10:20 AM

I serve tables at a restaurant (California), and management (large corporate chain) insists we declare 18% tips on sales (whatever the outcome of the night) or face reprimand...

The restaurant is apparently under close scrutiny by the IRS, and the response to take eyeballs off is to require employees to declare a minimum 18% tips every shift. Now, the law "requires" we declare 100% of our tips, but where it gets a little dicey arrives with tipping out. Bartenders, back waiters, and bussers. After I tip them out (fixed amount based on sales), I'll be lucky to retain a 15% take-home ratio (especially on crappy nights/weekends).

Management insists it's the law that ALL tips accrued (before tip out) is the amount I'm expected to declare. I mentioned I thought it was odd to be taxed on earnings I don't take home, and then to have that same cash doubly taxed when the next person down the line (busser, back waiter, etc.) has to declare tips themselves. I was told to look it up. I did, and the specifics don't seem to address this particular distinction (unless I missed it).

Anyway, "reprimand" includes getting written up and receiving limited sections and hours. I just care about making money, but I wanted to know what my specific rights are in this instance. I feel the employees are being "compelled" to declare more on most nights than we actually make, and I was curious about the legality of it all, specifically if what we're supposed to declare should reflect post or pre-tip out.

posted by Mach3avelli to law & government (10 answers total)

Tips that are given to other people are not your own income (even if the cash passes through your hands on the way to the bartender, etc) and you should not be taxed on them.
posted by tylerkaraszewski at 10:23 AM on February 24 [7 favorites]

I don't see how they could possibly legally require you to make a false report to the IRS. If I were you I would tell them that you are happy to report the full amount of your actual take home tip amount, and that if they want this to always be a minimum of 18% you are happy to report that amount so long the house is willing to make up the difference on nights when you are below 18%.

Presumably they are saying "always 18%" because they assume that your averaged tip income is 18% or higher, even if there may be some times you are under 18%.
posted by slkinsey at 10:39 AM on February 24 [1 favorite]

I don't think this is a Department of Labor issue, your question refers to tax matters (AFAICT) which is IRS

You need the IRS reporting requirements which are kind of outlined here

Note answer to your question here in that

If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report to your employer any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees.

posted by bitdamaged at 10:47 AM on February 24 [13 favorites]

Straight from the IRS

If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report to your employer any portion of the tips you receive that you pass on to other employees. However, you must report tips you receive from other employees.
posted by empath at 10:54 AM on February 24 [5 favorites]

Just an aside, but perhaps you'd like to know that the IRS has a program where you can report illegal tax activities and get a cut of whatever the IRS recovers.
posted by zippy at 11:28 AM on February 24 [9 favorites]

If your employer insists that they have the correct interpretation of the tax code on this, ask them about whether you can deduct your tip-out costs as unreimbursed business expenses. This question might go up the channel in a way that might lead them to have a better (or at least more nunaced) view of the rules.
posted by MattD at 11:39 AM on February 24 [2 favorites]

Back in the middle ages ( 70's) when I started out, it was related to minimum wage ( from the employer's perspective). As long as we declared enough to cover our hours, they were satisfied. If they had to cut a payroll check, they were pissed.
posted by lobstah at 12:09 PM on February 24

If they're already "under scrutiny" with the IRS, then I'm betting the IRS would be very interesting in knowing about this mandate.
posted by Rykey at 12:09 PM on February 24 [7 favorites]

Gah, interest-ed.
posted by Rykey at 12:24 PM on February 24

Yes. The IRS is interested in tax shenanigans and will give you a portion of the proceeds. I've used this well known clause to my benefit with a past shady entity. I didn't want to report them - I just wanted to be dealt with fairly.

Here is what I did...

But wait! You are a server in a restaurant (I have extensive FOH and BOH experience) and you can be fired at will. So best be careful.

Interesting twist?

This is a large corporation chain. This could equal a Class Action Suit. (Your corporate employer is concerned about this, you should simply understand what their concerns are if you start asking relevant questions.)

Ahem. Relax!

What I did in my situation was talk to someone in the right IRS department about what was going on, just to get info. I then let the powers that be know (verbally) I taked to X and they said Y -- how should I proceed?

That I knew more than the average person the shady entity was seeking to hoodwink was enough, and I received special treatment from there on, in my favor.

This might not work for you for the reasons I outlined aboved.

Here is the deal - management is not on your side. They are being forced into this, and the corporation (and their lawyers) are hoping workers like you do not call the IRS directly to clarify.

The problem is that you are an individual dealing with the IRS. You need to call them to clarify so that you insure you are paying your taxes incorrectly.

The IRS is very nice and helpful over the phone! Most people don't know this!!


Call the IRS and explain. Ask them to advise you.

Do what they tell you to do. I don't understand how your employer knows or does not know how you file your taxes. That's kinda your private business - yes?

If your employer is declaring that you are receiving 18% to the IRS, and this is demonstrably not true, then ask the IRS how to proceed.

Likely you will have to notify your employer of this discrepency.

If you have documentd your employer's actions and the IRS's opinion on the issue..... Then you are set to visit an attorney down the road if you get fired for protecting your income.

I'm sorry this is happening.

You should NOT just play along with the company mandate.

At the very least, call the IRS for a clarification.

If you pushback against your employer's directive after speaking with the IRS, that is up to you.

My hope is this is a private matter and you can report your actual income directly to the IRS without involving your company.

I guess you should be prepared, just in case it gets worse.

And there could be money in it for you as a reward or settlement waaaaay down the road - so there's that reason to keep good documentation. That, and if you are ever audited!

Keep accurate records of your income and payouts from now on.


Call the IRS and ask them what to do.

Good luck.
posted by jbenben at 8:15 PM on February 24 [3 favorites]