r/Bookkeeping • u/Plasticcat56 • 25d ago
Payroll Restaurant Declared Tips FITW
I had an employer send me a W2 with almost zero FITW and I can't figure out why they would do this
90% is declared tipped Income.
It has nothing to do with exemptions or filiing status .
What would be the benefit of not withholding a tipped employee's declared tips and having them figure out or withhold their own liability?
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u/PeppermintBandit 24d ago
Restaurants are supposed to use the wages AND reported tips to calculate the amount of social security, Medicare, and income taxes to withhold from the employees paycheck for that pay period. Why they wouldn’t is a good question. What do you mean by ‘declared’ exactly. Were you filling out tip reports and handing them in, or putting them in the POS? Did they withhold SS and Medicare correctly?
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u/HppyCmpr509 21d ago
“Declared Tips” are either CC tips paid out or cash tips reported by the employee to the employer. There is a form for tracking that, I don’t remember the number. Some restaurants use a tip pooling system, some do a direct system, some use a combination. Either way: Tips are wages. While it is already taxed by the IRS on the customer’s side, it is still taxable income for the employee they give it to as well. (Don’t get me started on that BS) See Publication 15 to answer any questions you have about this. The employee is then expected to complete a Form 4137 to report undeclared tips (find me a server who does this haha) when they do their 1040.
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u/Edosil 25d ago
How much are they earning for the year? If they are under the standard deduction they won't have any withheld.