income tax question for waiters: Is tip share tax deductible?

January 17, 2007 9:58 PM

waiter income tax question. Its common practice for waiters to "tip out" a certain portion of their money every shift to support persons. This might not seem like much, but for career waiters, this means an extra $2000+ Is this a deductible employee expense in the eyes of John Q. Tax?
posted by donmayo to Work & Money (9 answers total)

I'm assuming you mean the portion of tips given to busboys, etc. That quantity could be a deduction only if it was included in your stated income. More likely I think is to state your income from tips not including the portion of tips that you didn't actually receive because they were forwarded.
posted by polyglot at 10:13 PM on January 17, 2007

The complication here is when you get credit card tips. If you have cash tips, it's easy - you declare the amount you actually received as tip income (so whatever the people give you minus whatever you tipped out). This is because cash tip income is almost never on your W-2. Credit card tip income, however, usually is. So, for example, if you get $200 in credit card tip income, but you tipped out your busboys $50, you need to know how to handle it.

Essentially, if you have received $500 in cash tips and $500 in credit card tips, and have tipped out your busboys $200 of that, then you claim $800 in tip income on your tax return.

Of course, this is assuming you are one of the honest ones and even declare your cash tips on your tax return. Many people simply enter in the total dollar amount of the tips listed on the W-2 and do not declare cash tips. If you are thinking about trying to take a deduction from the amount on your W-2, I don't think there is anywhere that you can claim that - but you can ask your employer to adjust the W-2 to reflect the actual amount you received.
posted by bedhead at 10:56 PM on January 17, 2007

Normal IRS rules for employment related expenses are, at their core, something like this:

1. Is it your money or the employer's? That is, when you "tip out" are you giving money that belongs to the employer to the support staff or are you giving money that you've earned to the support staff? If its the first, then it is not an expense and, in addition, you shouldn't be reporting it as income on your return. If it is the second, proceed to step B.
2. Report the entire tip as income on your return, don't omit the "tip out." Now, does the employer require you to "tip out" the support staff? That is, could you demonstrate that you'd face sanctions from your employer if you refused to do so? If the answer is yes, proceed to step C. If the answer is no, then the "tip out" is not an expense - you're giving a gift to the support staff. If large enough you may even be required to report these gifts to the IRS.
3. At this point you have a work-related expense. The remaining question is, does your employer reimburse you for this expense? If the answer is no, then you may deduct the "tip out" as unreimbursed work-related expense. Note that to claim most work-related expenses, you must itemize deductions and you can only deduct the portion of your work-related expenses that exceed 2 percent of your adjusted gross income.

posted by RichardP at 10:59 PM on January 17, 2007

Argh. The Step A/B/C stuff worked in preview, but apparently the list type argument was stripped during the posting process. Replace Step A/Step B/Step C/ with Step 1/Step 2/Step 3.
posted by RichardP at 11:01 PM on January 17, 2007

This is something you should work out with your employer. At my former job, we had "Indirect Tip Sheets". Each busperson and Maitre D' would list the amounts they'd received from each waiter, and the waiter and support person would sign the sheet. This was done daily at my very corporate job.

The payroll person would therefore reduce the declared tips from the waiter, and add that amount to the support person's declared tips for the week.
posted by saffry at 4:30 AM on January 18, 2007

We were always told not to report tip-outs at work. We were at 2% sales, so if I sold $1000 in a night, I knocked $20 off how much I reported. Roughly 1/2 my sales were in cash, so I'd reduce my reporting from $50-->$30 and called it even.
Of course, my manager was also anything but a lawyer.
posted by jmd82 at 5:53 AM on January 18, 2007

My bar keeps track of what we tip out each night and uses that to report for us. They of course also keep track of what the kitchen and bus boys get tipped out. So the answer is, it is perhaps already accounted for when you get your W2. There is no need to be greedy since for most of us what we claim ends up being less than what we walk with.
posted by stormygrey at 8:54 AM on January 18, 2007

Many people simply enter in the total dollar amount of the tips listed on the W-2 and do not declare cash tips.

Some servers' W-2s include their cash tips, if they're honest--some restaurants have the servers claim their tips to the restaurant so they can be taxed appropriately. At the last place I worked, servers tipped back to the house (which allocated the tip-out to the bartenders/bussers/hosts) as a percentage of sales, then declared what they had left (originally to the headwait, then later it was integrated into the computerized time-clock). If they had to over-claim because their credit card tips were more than their actual income, they'd declare less by an equivalent amount on a more cash-heavy night.
posted by Cricket at 6:18 PM on January 18, 2007

Ah, there lies the beauty and the rub of the situation. Our OS (Aloha) makes us claim our tips at the end of every shift. It has a record of all credit tips and can calculate estimated cash tips.

It does't take into account (insert multple names for tipshare/tipout)

This is a corporate OS. My restaurant is anything but corporate.

Ex. I work a friday night shift. No matter how much I make, I pay "tip out" of $x in cash.

Can I claim this as an employee business expense?

I'm not trying to "get over on " anyone. I just want to minimize my taxes.
posted by donmayo at 12:54 AM on January 19, 2007