Saturday, June 22, 2013

Tips

Posted on Sat, Jun 22, 2013 at 8:24 AM



Everytime there is a comment about a server not getting a tip, the writer
states that this costs the server money because the server is taxed on
their sales. While this may be true in the short-term, it is not true in
the long-term. For tax withholding purposes, it is assumed the server is
given a 8.5% tip. On a $100 dinner, the assumed tip is $8.50 and the
employer withholds $1.70 if you are in the 20% tax bracket. In the
short-term, you are out $1.70, but this is refunded to you when you file
your annual tax return and you report your actual income. Now assume that
you received a 20% tip on that $100 dinner and got $20 in cash. If there is
no immediated reporting of your tips, it is again assumed you got a 8.5%
tip and $1.70 is withheld from your wages. You now have an extra $18.30 in
your pocket, until you report your actual income on your tax return and
have to pay the extra tax that was not previously withheld from your pay
check. Generally, for tax withholding purposes, the times the server
receives a zero tip is balanced out by the times the server gets a tip that
is greater than 8.5%.
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