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2014 IRS Tip reporting rules


The 2014 IRS tip reporting created a new rule that affects both restaurant employees and employers. As you may already know, a server who earns $20 or more in cash tips in a calendar month is required to report their tips to employers by the tenth of the following month. However, on Jan 1, 2014 the IRS mandated that restaurants must add automatic gratuities, such as those automatically added to groups bills, to a restaurant server’s paycheck at the next pay date rather than letting the server collect those tips every night. Automatic gratuities are considered wages and are subject to Social Security tax, Medicare tax, and Federal income tax withholding. But the new rule does not affect tips which are not automatic.

2014 IRS Tip reporting

Restaurant servers should always keep a daily tip record. This helps servers in many ways. It makes it easy to report tips earned to employers, report tips accurately on tax returns, and have a record in case the need arises to prove tip earnings. Some servers keep a daily tip diary or tip record. A convenient way to report tips is on the form 4070A. Another method is to keep all documents such as bills, credit and debit charges, and add them all up at the end of the month.

IRS Reporting rules

Also, did you know servers need to keep track of non-cash tips such as tickets, passes, or other items of value? Non-cash tips or gifts do not need to be reported to employers but do need to be reported on tax returns. And remember to keep track of any tips paid out to other servers through tip splitting or tip pools, etc. and record names of servers to whom the money was paid, as well as money earned from the same venues. By taking a few minutes at the end of every shift to record tips earned, tax reporting day will be a lot easier.
If you have any questions regarding the reporting of taxes, the new laws and how they affect you, or tax questions in general, please contact us.