Tip Income - Tax Reporting Issue

[Christine Roberts]

Employer properly includes all cash & charged tip income in compensation paid to wait staff, for purposes of FICA, FUTA, and income tax.

However, wait staff has practice of forwarding some of the after-tax tip money to the sub-wait staff, such as busboys, dishwashers, etc.

Presumably, the sub-wait staff would report this forwarded tip income on their individual 1040 returns. However, how should transmission of the forwarded tip income be reported? Via 1099 from wait staff to sub-wait staff?

Any comments welcome.

[KIP KRAUS]

Christine:

I’m not a tax accountant, but I seem to recall that the employer is only required to automatically report a certain IRS assumed amount of tips in an employee’s income. If this is still true, and all of the wait staff is making well in excess of this amount wouldn’t it make sense that the amount the wait staff gives to the sub-wait staff should be given before tax and then it would have to be reported by the sub-wait staff and not the wait staff ?

I don’t understand how they are giving the sub-wait staff after tax tips?

[Christine Roberts]

Kip, thanks for the input. What you are talking about is tip splitting which is an accepted way to report tips, but different from what this taxpayer is doing.

I have referred them to a local CPA who specializes in restaurants.

[KIP KRAUS]

Good Idea Christine