Tips for Calculating Taxes on TipsMarch 27, 2012 — 2,100 views
If you are a business or individual working in an industry that accepts tipping as a legal supplement to wages, you need to report these on your income tax forms. The IRS considers tips given to employees as generally available for withholding, and this includes money received from customers and employers alike. It can sometimes be difficult to calculate the appropriate tax rate on tips, but there are a few guidelines that can be followed to ease calculations on tax day.
Employers should use one of the forms provided by the IRS for tip allocation and recording. The 1070 and 1070A forms can be used by waiters to provide weekly and even daily logging of tips. The information from these sheets can then be incorporated into the yearly form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. This annual report is responsible for determining income taxes and return on investment.
Small business managers, restaurant staff and construction specialists are just a few of the people who may receive tips during their daily tasks, and in order to comply with federal law these tips must be taxed accordingly.