When figuring out taxes, there is a misconception that servers are required to report their tips as at least 8% of their sales revenue. 8% is simply a bottom line that the IRS uses when attempting to determine how much a server earned in tips over the year. The IRS does not expect to be paid 8% of a server’s sales as tax – that would be akin to taxing the customer for their bill. What it means is that in the absence of documentation to show how much that server earned in tips the IRS is going to assume that they earned at least 8% of their food and beverage sales. So if a server sells $1,000 of food than the IRS is going to automatically assume that they took home $80 in tips that night. They’re going to treat that $80 as taxable income and depending on what tax bracket the server is in they might get 25% of the $80 which is $20. So when a customer tips 8% it isn’t all going to the government, it’s simply that all of it is going to be taxable automatically.

To put it another way, if everyone tipped 8% the server would still make some money (albeit half of what is typical), it wouldn’t all go to the government. Most service employees average 15-20% of their sales in tips, so using 8% as a default is conservative from the IRS’s point of view. Servers are required to report ALL of their tips, even if they made 25% (or more) of their sales in tips. Naturally most of them will report far less than this, but still more than the default assumption of 8%. In places where credit cards are used the IRS can use the tips on charged receipts to estimate the amount of tips received from tickets paid in cash. The two are generally close to each other, so if a server shows 16% of tips on all of the charged receipts they’ll be sending up a red flag if they under declare their cash tips too drastically (e.g. 6%).

When servers are reporting income sales revenue through their income tax software, just keep in mind that 8% is just a guideline, not a hard fact of income and you are in-fact required to report all of your income. For all of the details of the law, see IRS Tipping Tax Laws

Still when a server is stiffed they are still losing money – they’re getting zero on a ticket that the IRS will assume they made at least 8% on, paying taxes on revenue they didn’t make.

Tip20! Original Article
by Tom Mason, Founder Tip20!

There was a lot of buzz and excitement centered around Denny’s Super Bowl free breakfast promotion this week.
Denny’s reportedly spent around $5 million on the promotion and gave out 2 million free breakfasts. Aside from being a brilliant marketing ploy generating public awareness of the company’s product, I’m sure Denny’s sold a few other things that day as well.

Of course this promotion kept the servers and entire restaurant staffs incredibly busy in locations across the nation for the length of the special. Free food is a great thing. Food is what was being offered for free, not service. Servers worked very hard delivering tons of free breakfasts and keeping coffee fresh in the cups of millions of diners. How did they fare in tips?

Whenever a restaurant offers a special, coupon or comps a meal, it has an impact on the total of the bill. The bill total that you are presumably basing your tip on. If you get a free breakfast at Denny’s your bill (if you ordered nothing else) would be zero.
Tipping any percent of zero is zero. So you must base your tip on what the meal would have cost you if you had paid full price.
If you had great service and would normally leave 15-20%, check the menu and add up what your bill would have been and tip based on that.

Please keep in mind that the servers rely on their tips as a significant portion of their income. In most cases servers work hard to earn their tips. If you do not tip on a free or discounted meal, you are taking away from what they could have earned on a table paying full price. The same applies to buy-one-get-one-free offers and discount coupons.

If you get food comped off of your bill because the kitchen screwed it up, yet your server did the best they could to give you good service and rectify the problem, please don’t punish the server. They worked hard to create a pleasurable dining experience for you.

How do I get that new car loan?

A Tip20! Original Article by J.D. Marshall, Tip20! contributor.

New employees to the restaurant industry always ask me how much of my tips should I claim and do I have to claim them all. The answer is very easy. “You must claim them all.”Now I know that many of you will not agree to that statement.  Many of us have the misconception that we only need to report 8% of our total sales as tips. The law states that you and I must report all (100%) tips we receive, except for the tips from any month that we do not total at least $20.00. The 8% allocation is a requirement placed on the employer. For more on this go to http://www.irs.gov/pub/irs-pdf/p531.pdf

Keep in mind that an IRS audit is no fun and you want to avoid the huge fees and penalties involved. Also you need to claim them in order to obtain Social Security and Medicare coverage. We can’t stay young forever.

Yes, I know we don’t get paid enough, the government taxes me enough already, I have rent to pay, C.D.s to buy and the list goes on and on. So really why should you or I want to claim all our tips?

Well let’s see. How many servers or any tipped employees do you know that cannot rent or purchase a home, have to walk, ride a bus or walk to work. Is it because they can’t afford the payments? Not in most cases. Most times it is because they don’t have any or enough credit. Without credit we are stuck, walking or living with friends or family.

One of the major things creditors look for is proof of income and the ability to repay. That’s right, if you can’t prove your income, chances are that you will be denied a credit card, the opportunity to get your own living accommodations or that new car you have been dreaming about.

Walking into a car dealership and bragging about how much money you make in tips at that nice new 5 star restaurant will only get you the cold shoulder and blisters on your heels having to walk home. But if you go into that dealership with your current paycheck stub or W4 showing all the mega bucks you earn (from the tips you reported) chances are you will be driving home in a nice shiny car.

Of course there is one drawback to reporting all your tips and owning that nice new car. Your fellow employees and friends will now expect you to be their taxi service.

Report all of your tips and I will be seeing you in the fast lane!

(J.D. is a long time veteran of the restaurant wars. He is always willing to share his wit and wisdom about the restaurant industry. You can find many of his thoughts and comments at Tip20.com. Have a question or comment for J.D.? Contact him at tiptopmanager@america.hm.)

By University of Montana reporter Natalie Neumann

A bill that would cap the minimum wage on employees who also get tips failed in the Montana Senate Tuesday.

The bill would have allowed employers to count tips as wages to make up the difference when the minimum wage rises beyond $6.90 an hour. Bill sponsor Don Steinbeisser, a Republican from Sidney, says the bill would support restaurant owners who are struggling to keep their businesses afloat.

“This bill is about jobs. Is it better to have a job with a little bit less, a little less tip, or not to have a job at all.”

Steinbeisser says Montana is one of seven states that doesn’t have a tip credit and says it’s a reason some prospective businesses don’t come to Montana.

Attorney General Steve Bullock spoke against the bill prior to the Senate session. Bullock spearheaded an initiative in 2006 to increase the minimum wage, which passed with 73 percent voter approval.

“Now at a time when we’re giving Wall Street millionaires handouts and bailouts, it’s important that we also remember the other side of the spectrum. It’s gonna take all of us working together to get out of the financial crisis but we shouldn’t do it on the backs of waiters, waitresses, bartenders and taxi cab drivers.”

Democratic Senator Joe Tropila of Great Falls voted against the bill. He said: “And having been in the business and having had waitress and cooks and chefs who make more money than the waitresses. They rely on their tips because they work at minimum wage. They are the poorest of the poor.”

Natalie Neumann reports from the capitol as a reporter for the University of Montana’s Legislative News Service.

The tipping point
By Elizabeth Aguilera
The Denver Post

Jeremy Bauman is working just as hard as he did a year ago. He’s quick to say hello, take margarita orders and serve up hot and tasty dishes. But lately, his wallet — and those of many other tipped employees just like him — is much lighter than it used to be.

Bauman, who bartends and waits tables at Mezcal on East Colfax Avenue, is one of thousands of workers who depend on tips to pay rent, buy groceries, pay student loans and go out to eat.

Lately, the economy has cramped the ability to meet those obligations in the shape of consumers tipping less, either by lowering the percentage or by ordering and spending less overall.

“We’re sometimes making one-third less a night, and that makes it hard,” said Bauman, who has deferred paying his student loans. “Why am I the one being forgotten about? … People don’t think about how this is our lives.”

According to the 2008 PayScale Tipping Report, wait staff, gambling dealers and bartenders earn the highest percentage of pay from tips.

For part-time waiters and waitresses, nearly 70 percent of their income is from tips. In Colorado, where tipped employees are paid half the hourly minimum wage, the percentage is even higher, experts say.

The PayScale report found that six of the 10 professions relying most heavily on tips are in the restaurant and hospitality industries, said Al Lee, director of Quantitative Analysis for Seattle-based PayScale.com.

“These are areas that get hit hard in an economic downturn,” Lee said. “If you’re thinking that the way to cut the bill is not to leave a tip, that is not the answer. If you are not tipping the person, they are not getting paid.”

Instead of restaurant service, Rich ard Oppenheim of Highlands Ranch is choosing counter pick-up at such places as Fatburger or Tokyo Joe’s. And Ronald Lewis of Denver has reduced his tipping from 20 to 25 percent to 15 to 18 percent because of the slowdown in technology-consulting work.

“I sometimes feel guilty for the reduction,” he said. “But I know it’s a necessary action during these challenging economic times.”

For tipped employees, it means making cutbacks.

“It’s a chain reaction; it hits everybody,” said Michael Kudla, a bartender at Elway’s in Cherry Creek. “I don’t go out as much as I used to. I try to budget and plan ahead.”

Kudla’s customers are not tipping less, and he feels fortunate that the seats in the bar are always warm. But he has noticed customers are ordering lighter fare and therefore spending less.

“We’ve been pretty fortunate. It’s a recession, but people still want to drink,” he said.

At India’s Pearl on South Pearl Street, servers are taking fewer tables and increasing face time with guests to ensure steady tipping. So far, that seems to be working, said server Beryl Shereshewsky, who says she’s averaging around 18 percent tips.

“People are sharing more and ordering less food so the total bill is less,” she said.

For some, though, tips seem to be holding steady.

Mary Beth Struve credits the regular customer base and neighborhood atmosphere at Bonnie Brae Tavern on South University Boulevard for keeping her tips constant.

“This is more of a family, neighborhood place where we have a lot of regulars,” she said. “Maybe that’s happening at more high-end places.”

Elizabeth Aguilera: 303-954-1372 or eaguilera@denverpost.com