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.
Related Information
February 15th, 2011 | 
This post is spot on. To add one more thing, it is not just servers who believe the misconception that they are required to report their tips as at least 8% of their sales revenue. This is the case in many other industries, such as salons and other service based businesses.
If we really wanted to help our people in the service industry, we would recognize Ron Paul and his bill, HR 1139, “The Tax Free Tip Act of 2011″. This bill simply make all tips non-taxable. Learn more at TaxFreeTipAct.com
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[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
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[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] of tips, a supervision will demeanour during a servers food as great as libation sales as great as base their taxable tip income upon a percent of it. So if you do not tip a server, it has essentially price a server income to offer you. See a IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
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[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
[...] proper documentation of tips, the government will look at the servers food and beverage sales and base their taxable tip income on a percent of it. So if you do not tip the server, it has actually cost the server money to serve you. See the IRS [...]
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