Food server tip: report your gratuities

Are you a waiter?

If that's your regular job, you already know that today is a tax day.

No, you're not paying anything; just reporting income so you can pay taxes on it later.

When you make at least $20 in tips the previous month, then today, like every 10th of the month that falls on a weekday, you're supposed to report that total tip amount to your employer.

Many folks may be new to the job, though, having signed up for a part-time gig to make some extra cash during the holidays. So I want to make sure they understand their tax obligations when it comes to gratuities.

I know that sometimes diners are so cheap that you feel like what little you get beyond the check's tally should be yours to pocket without any further worry.

Sorry. The IRS thinks differently.

The tax collector requires that you tell your boss about your tips so your employer then can use the tip amount to figure how much Social Security, Medicare and income taxes to withhold on both your wage and tip income.

The National Restaurant Association has a good primer on tip reporting.

Some of the highlights include:

• All tips are taxable.
  
• If you receive more than $20 in tips in a month, then you have to report the amount to your employer. Check out IRS Publication 1244 for details.
  
• Record keeping is critical, for you and your employer.
  

If you don't report your tips and the IRS finds out, it'll cost you a lot more than that big spender left on the table.

In fact, the IRS has been quite interested in tip income for, well, forever. But the agency really started focusing on tips back in the early 1990s, when it initiated voluntary agreements with restaurateurs in an effort to increase the total amount of reported tips.

Record keeping relief: Most recently, the Attributed Tip Income Program, or ATIP, has been in place for the food industry since 2007. ATIP was scheduled to expire at the end of
this year, but the IRS has extended it through Dec. 31, 2011.

Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally allocated among employees based on the practices of the restaurant.

The good thing about this program, for both employers and employees who get tips, is that there's something for everyone.

The IRS obviously gets more restaurants reporting tip income.

Participating employers get assurance that the IRS will not initiate a tip examination as long as the restaurant is part of the program.

And the employees who get the tips don't have to keep a daily tip log or other tip records. Rather, if you are a server at an establishment that's part of ATIP, you can sign an agreement with your employer and simply have your tip income computed under the program and reported as wages.

Check with your boss about whether your workplace is part of ATIP. If you collect tips, it could save you some time, too.

Not just for food service: Although the IRS has established special tip reporting programs for the food and beverage industry, the agency is interested in all folks who regularly receive tips.

This includes such professionals as hairdressers, spa workers. maitre d's, concierges, taxi drivers. The list goes on and on.

IRS Publication 3148, Tips on Tips, has details for all affected workers.

Related posts:

• Tips are taxable income (Bankrate)
• Tip income trips up Yankees' traveling secretary

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