Reporting Tip Income

2008-10-14 by

Today TaxMama hears from Danni in Florida who tells us “I am a hairdresser. What percentage of my tips am I required to report?”

Dear Danni

100% – ALL OF YOUR TIPS!

Why should you have to report less than all your income when every other working stiff has to report 100% of theirs?

Whatever gave you the idea that hairdressers get a special break?

And remember, you can find answers to all kinds of questions about cash income and other tax issues, free. Where? Where else? At TaxMama.com

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IRS Publication 531
Reporting Tip Income

# | Posted in Tax Quips | Comments » (4)



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  1. Ronnie Beaman, CPA Says:
    October 14th, 2008 at 06:31 am

    I've run into this problem several times with Hair Salons and Restaurants.

    The workers don't want to report all of their tips and the owners help them, by loosely tracking or not tracking at all. The owners say they will lose staff if they insist on reporting tips.

  2. Thomas Avery Blair, EA Says:
    October 14th, 2008 at 07:34 pm

    Bravo, Taxmama. Had similar question at a restaurant recently. Things were slow and the two ladies, knowing I did tax work in my small town, asked me essentially: "How much of my tips do I really have to report?" They were obviously expecting me to tell them a dollar figure, but I freaked them out with "Whatver amount you comfortably can not report and justify the worth of going to jail for."

    They both were shocked when I explained that under-reporting tips is no different from other taxpayers cheating on their taxes. I smiled and closed my remarks with "There are bold tax cheats, and there are old tax cheats, but there are very very few old bold tax cheats not wearing federal prison orange!" I do very few Form 4137s, but I do make certain that each and every waitperson and bar tender knows that neither ignorance nor greed justifies the tax cheating behavior before either God or the IRS. Respectfully submitted, Thomas Avery Blair, EA

  3. pismoclam Says:
    October 15th, 2008 at 02:09 pm

    I think the IRS assumes that wait staff get 8 or 9% of their gross sales in tips. Some 'coffe shop' waitresses make less. They make a declaration for it, which IRS usually accepts. How about it TaxMama?

  4. Eva Rosenberg - Your TaxMama® Says:
    October 15th, 2008 at 03:38 pm

    Hello Pismo,

    Actually, IRS ran a major program with the restaurant industry, starting with (if memory serves) Caesars Palace in Las Vegas. They came up with guidelines which are outlined in Publication 531 (see the Resource Box above).

    The tax law still requires that servers report ALL tips. In fact, there is a 50% penalty for not reporting tips, as required.

    Bear in mind, in many restaurants the servers have to share tips with hosts, chefs, bussing staff, etc.

    Best

    Eva

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