Summit Payroll

Summit Blog

Wednesday, August 25, 2010

Tipped Employees

Tipped Employees
Who must report tips?
• Employees of food and beverage operations who receive tips. But, reporting is also required from any workers who receive tips, such as: hair dressers, cab drivers and casino dealers.
• As an employee, tips are used to determine the amount of Social Security benefits you and your family may receive if you retire, become disabled or die. 
• If you are an employer who has workers receiving tips, give Summit Payroll and HR a call.  They can simplify the withholding and reporting of tips for you. 
Employee’s responsibility:
• The law requires you to report tip income to your employer.
• An employee who received tips of $20.00 or more in a month, is required to report total tips to employer. An employer may require employees to submit the report by the 10th of the month following any month in which tips were received. 
• Tips are subject to Social Security, Medicare and Income taxes
• Unreported tips may be subject to a penalty of 50% of your Social Security and Medicare taxes if the IRS discovers tips have been under-reported. 
What payments are tips?
• A tip is a voluntary payment from a customer.
• Tip payments may be made in cash, by check or charged on the customer’s credit card to be collected by the employer and paid over to you later as cash
• Some payments to employees appear to be tips, but really are wages. THREE EXAMPLES OF NON-TIP PAYMENTS: 
• Hotel banquet manager negotiates a service charge with customer and distributes the proceeds to employees.
• A club bills members for all services rendered and includes a mandatory gratuity for employees, then distributes the proceeds to employees.
• Employer requires the employees to turn over all tips to employer, and distributes the proceeds among all employees.
• If you are involved in tip pooling or tip splitting with other employees, report only the amount of tips you actually receive and keep. For example, if you receive $500 in tips a month and give another employee (like a busboy) one-fourth, you report $375 in tips and the other employee should report $125.
How to report your tips
• You may use IRS Form 4070 to report tips to your employer.
• Otherwise, here is the information required
• The amount of tips
• Your employer’s name and address
• Your name, address, Social Security Number, signature
• The month (or shorter time) covered
• The date of the report
When to report your tips
• Your employer may require you to report your tips more frequently than monthly. However, as long as you submit your report by the 10th of the month following any month in which tips are at least $20, you have satisfied the law.
• If the 10th day falls on a Saturday, Sunday or legal holiday, you may report on the next business day.

Mireya Gutierrez, Payroll Specialist, Summit HR & Payroll