For people in the restaurant industry, the ins-and-outs of filing taxes can be a bit confusing. With cash tips, credit card gratuities and fees, tip-pools and sharing programs, figuring out just how much money you -- or your employees -- have earned and how much is owed to the government can be a real pain in the neck. The good news is that many tax deductions for waitresses exist, and by keeping accurate records of your tips, you can take advantage of them. You don't have to pay taxes on money you didn't get to keep.
You don't pay taxes on tips that you are required to give away; it's not your income. Many restaurants require waiters and waitresses to participate in tip-pooling systems, in which a predetermined amount of daily tips are allocated to non-tipped front of the house employees such as busboys and service bartenders. The amount of you tips you distributed, or "tipped-out," to other employees can be claimed as a deduction when filing your income tax return. The IRS requires restaurant servers to keep an accurate account of your tip income, including how much you were tipped in cash or credit by customers, how much you contributed to tip-pooling systems and how much you tipped-out to individual coworkers. Keep detailed records of how much money you earned in tips and how much was allocated --and to whom -- to claim your contributions as tax deductions.
Tip Processing Fees
Some states allow restaurant owners to extend the fiscal responsibility of credit card processing fees -- or a portion of it -- to waiters and waitresses. At the time of publication, only Alaska, California, Colorado, Montana, Nevada, Oregon and Washington prohibit employers from taking such deductions. The industry standard for credit card processing fee deductions is about 3 percent. For example, when working in a restaurant that uses this procedure, you would receive only $48.50 of a $50 tip charged on a credit card. If your employer deducts a credit card processing fee from your charge tips, you can claim this deduction as an expense when filing your income tax.
Waitresses and waiters can also claim tax deductions for items and services purchased as part of their employment agreements. Such work related expenses often include the price of uniforms, aprons, name tags, employee badges and swipe cards for POS system access. If you are required to wear special work shoes -- such as non-skid soles or steel toes -- you can claim professional footwear as well. When you are required to provide your own tools and supplies of the trade like serving trays, bar tools, pens and gust check books, you can claim each of these items as work expenses. You may also take a deduction if you have paid out-of pocket for any mandatory training or certification classes such as sanitation or alcohol awareness.
Restaurant owners are also eligible to qualify for certain tax deductions related to waitresses. At the time of publication, by law, servers who receive more than $20 per month in tips are required to report all tip-income to their employers. Your employer is responsible for ensuring that you consistently earn at least the state required minimum hourly wage. However, he has the option to pay you below the minimum wage if your tips fulfill the difference. In instances when your tips do not make your hourly pay rate equal to the current minimum wage requirement in your state, your employer must make up the difference.
Should your employer elect to pay waiters and waitresses the full minimum hourly wage, she is then qualified to claim a 100 percent tip-credit for any FICA taxes paid on server tips, whether you report them or not. If you are an employer claiming the tip-credit and paying your servers an hourly rate below minimum wage, you may not claim the credit for any amount of tips that brings their pay rate up to state the minimum. A tip-credit can only be claimed for tip amounts that exceed current minimum wage laws.
- Protax Consulting Services: Tax Deductions for Waiters & Waitresses
- Tax Smart: Key Deductions
- Summit Accounting Group: Waiters & Waitresses Tax Deductions
- Wiser Waitress: Wise up on your Wage
- Small Business Aide: Tax Deductions for Waiters & Waitresses
- Internal Revenue Service: Understanding Taxes - Module 2: Wage and Tip Income