tax on tip outs?
Can anyone tell me whether or not you are supposed to pay income taxes on tip outs? I'm a host at a restaurant. I make $10 an hour. $5.85 of my $10 is paid by my boss and $4.15 of it comes from server tip outs. In case you aren't familiar with this system, each server pays 2% of their sales out of their tip money (yes, 2% of their sales, not just their tips--so if you sold $500 and made $100 in tips, you only keep $90) and it goes to pay what I guess you could call the server 'support' staff. In most restaurants it goes to the host and the busboys and whatnot but we're a small restaurant so it basically just goes to cover the paychecks of me and the other host. Yes, I think this is a bum deal for the servers, but that's the way it is. Basically we get a pay stub that shows the minimum wage pay and the taxes being taken from that, but the tip out money isn't on that--it just gets added to our paychecks, and it is exactly $4.15 x number of hours worked, nothing taken out. The other host thinks we don't get taxed on it because the servers already pay tax on it, but I just want to be sure because I DON'T want to owe money on my taxes next year! If it were $20 a paycheck I wouldn't sweat it, but since it's nearly half my paycheck, I would owe a LOT of back taxes on it. I'm also not sure whether to include that income in my tax withholding calculations. I have 3 jobs so I'm trying to see how much tax money should be being withheld total since each job only calculates withholdings according to my income at that job. My monthly income would be reduced by $400-$500 a month if I don't count tip outs. The argument that the servers already paid tax on it makes sense to me (or at least, it would if the servers actually DECLARED their tips and therefore paid tax on them, but that'll be their tax audit, not mine), but I also kind of feel like they pay tax on it as THEIR income and I should have to pay tax on it as MY income... or maybe I'm just being paranoid because I don't think the government would let me keep that kind of money without taking a chunk, you know? I asked the host if her tip outs from last year were on her 2007 W-2 but she didn't know, and my boss didn't know either (how do you not know?!). In conclusion, tip your servers well. :-p