laurelee -- I think the 8% you saw in above post was the rate of taxes withheld on the total tips; not the amount of tips reported And yes, they are supposed to report 100% of the tips as income.

Hope this helps...
Debi

I had never heard about that 8%. I have a good friend who is a long time waiter in a pretty upscale restaurant. Income tax is withheld based on "estimated income" by the restaurant.
His hourly wage (way below minimum wage) gives him no income at all -- in fact after his health insurance and income tax based on his expected tips are withheld, he is generally in negative territory. They "estimate" his tip income to be about $50,000 a year and that's what he pays taxes on. The fact of the matter is, his tip income is closer to $75,000 a year. Incidentally, some weeks a lot more tax is withheld than should be -- as there is a slow season, but in high season, he makes up for that.

Incidentally, regarding tipping on the wine. He mentioned that their restaurant's "average" price for purchased wine recently passed $100 a bottle. He is very pleasantly surprised when his tip includes 20% of the price for the wine, and it does fairly often, so it is not unusual, nor does he think it's bad when a customer tips 20% on the meal portion and adds only $10 for the wine -- even if it was a $200 bottle.

I will also add that it is the employers responsiblity to make sure at least 8% is reported but its the employee who does it.

Neo,
Thats typical, what you described above. I work in a high end place for years and the majority of those years I owed monay at the end of the year. I just about always had negative paychecks.

Let me also add that this 8% thing is confusing but what basically happens is if the I.R.S. see a place that is recording less, well then its audit time. Anything less of 8% is a red light to them. Yes, of course a server is to report all income but who says at the end of the day he or she is walking with anything higher than 8%? The only way to prove it is to audit CCs but if most bills were paid in cash who can tell.
I will also add that many high end places will also have the server report what he or she tipped out. That can lower what they walk with considerably.
Many lower end places, ever chains, do not seem to worry about that as long as their butts are covered.

Yes, as mentioned the operative word is they are "supposed" to report all of their tips.

There are ways that businesses now are getting around this. For example, my hairdresser told me the savvy owner of the new salon she moved to uses a trick to avoid getting caught if audited.

On the credit card receipt it does not have a tip line so you can leave a tip
"in private". Instead the receptionists tells you of your total, and then asks, "will that be your final amount?" You tell her what totaly amount you want to leave including tip (and everyone else can hear you too) and she puts in that amount on your credit card. The receipt shows that you got the tip portion as "cash back".

So if they were audited, it couldn't be determined whether the customer got cash back or the stylists rec'd it as tip.

I have to pay taxes on all my earnings and don't think this is a fair way to cheat the system. Plus I'm not thrilled about "publicly announcing my tip amount". However, I grudgingly go along with it.

Enjoy-la!

The 8% refers to tip declarations of 8% of receipts, not 8% of tips. Again, employers cannot force declarations of tips not actually earned.

Restaurant operators do not push the requirement for tip reporting, other than "staying below the radar" because the reporting of TRUE tips would cost them more. They must pay the FICA/Dbl portion (7.65% total) of the total wages + tips. In the case of Neopolitan's friend ($75k tips, $50k reported) + $5500 in wages (assume $3/hr * 36 hr/wk * 50 weeks) would mean the employee should pay state and federal income taxes plus FICA/Dbl on $80.5k, as would the employer pay FICA/Dbl on the same amount. In addition, other taxes, insurances, etc. are often calculated based on the earnings.

Since that employer is saving $1,912.50 or more because of the under-reporting, he's not going to be complaining. Assuming the employee is paying about 20% in income taxes, he has saved another $5000 by not reporting the extra $25k ... so that $25k now becomes effectively almost $32k, and even more since he's not in as high a tax bracket due to the under-reporting.

Well, that $32k more than compensates for a few customers who tip poorly. Everybody makes out except John Q. Public: us!

Since there's a recent push for mandatory surcharges instead of (voluntary) tips by many in the service industry that we should all charge our meals and tips and put an end to this underground economy. We are the ones to pay AGAIN by having to pay the extra taxes.

klam-chowder: the IRS would never believe that a hair salon would be giving away "cash advances" to customers that was costing the operator anywhere from 2% to 7% in credit card commissions. Does he or she really think that IRS is so stupid as to think that is what is truly happening?

Someone mentioned whether employees must payback a portion of the charged tips. Generally not, but there are some pretty low-life cheap bastards running businesses that DO deduct the 2% to 7%. That "ain't right".

I also think that the 8% rule once covered a good portion of tips earned even after "tip out" to other employees but those where the days when a 10% - 15% was the norm. Now it seems that 15% - 20% is the norm so would think that the I.R.S. would eventually up that amount to 12% - 13% reported.

I was rather surprised as the SF Chronical reported the other day that a survey showed that people in SF restaurants tip lower than anywhere in the US..something like 17%. I wonder if that is due to so many tourist in SF from other countries where tipping is not done or the rate of the tip is so much lower. I would have been interested in what SF/Bay Area residents tip. I never tip less than 20% and because I usually have to ask some questions due to food allergies and sometimes ask for substitutions (always handled so graciously by the waiters) I usually tip more than 20%.

In California, servers must be payed minimum wage. This may be the reason SFers tip less.

Former SF waiter.

Well marginal, in that SF does have a minimum wage that is going up again in the near future I believe that could be the reason, good thought.

You don't count the tax when you figure out your tip.

Taking out the tax is just so much splitting pennies. If your dinner is $100 and tax is say 7 or 8 dollars maybe a bit more in some places. If you tip 15% that's less than $1.50. If you tip 20% it's a bit over $1.50. Is it going to be such a big deal to leave that in? Who would bother?

"Who would bother?"

Are you sure you want us to answer that? Isn't it obvious? The same person who rationalizes that the waiter is responsible for the food being a bit too salty so let's cut his tip -- or the one who says, "gee, it took a long time to get our food, let's just leave 10%"

Rhetorical question neo....

The tipping threads generally turn out the same and then get pulled. Tick, tick, tick....

We usually leave a tip via the credit card. Do servers prefer cash, or does it make no difference?

Servers definitely prefer cash tips.

Cash for the reasons mentioned. If the tip is on a CC then it is "proven income" but if its left as cash, the server can claim whatever.

Some restaurants take the cc company portion out of the servers tip. So if the cc company charges 3% then the server loses 3% of the tip you left.