Rant: Tip Culture

[33anda3rd]

1. payroll tax goes way up--potentially threefold. The IRS made some changes this year: auto gratuities are now a service charge. They must be reported and they are subject to payroll tax. Yeah, yeah, yeah, all money should be like this. Well, it's not. And our business model is set up for the way the world works, not the way people outside the industry think it should work (sorry, Yelpers.) We don't even put auto-grats on large tables anymore.

What exactly is the story with this? As far as I can tell, both the employer and employee portion of the payroll tax are owed on wage as well as tip income. How do restaurants evade this especially given that plastic tips are must be passed through the employers hands anyway? Is it standard practice to submit fraudulent payroll information to the IRS?

Tips are subject to special FICA tax laws, service charges are treated as wages earned. Auto gratuities, since they are required payments and not at the discretion of the guest, are deemed service charges and therefore wages earned under the new law.

[letsgocards89]

Protip: Tip your pizza guy in cash. He'll get to keep all of it and he will love you for it. (I'm not sure if the same goes for restaurant servers)

[Jocephus]

do i have to start paying tips in cash now and pay the bill on card so the server actually gets the money?

[33anda3rd]

do i have to start paying tips in cash now and pay the bill on card so the server actually gets the money?

Nope. The law sees a gratuity a the property of the server, and a direct gift from guest to server. The restaurant basically is handling that gift by collecting it via credit card sales then paying it out.

Our servers almost always get a $0 ADP check. Their hourly is absorbed in taxes. We write them manual checks bi-weekly for their entire tip--minus their payout to the SAs and bar--without tax withheld. It's their money. Their W2 has their credit card tips included. Anything they collect in cash is up to them to report and pay tax on. Any tax not taken up by their hourly rate it's up to them to save for and pay.

Tipping your server cash or credit--they get the same amount in tip, but they can't not declare the credit card tip. Whatever you save the server by tipping cash is what the server is not reporting to uncle sam.

[33anda3rd]

Protip: Tip your pizza guy in cash. He'll get to keep all of it and he will love you for it. (I'm not sure if the same goes for restaurant servers)

Our servers have part of their tip deducted from their total sales for their support, whether it's cash or credit tips. It's 2% per server assistant on their sales.

Server A rings $1000 in sales
Server A is ok
Server A gets tipped the standard 20% ($200)
Server A pays 2% of sales to the SA working ($20*)
Server A pockets $180

Server B rings $1000 in sales
Server B is a rock star
Server B gets tipped 22% on avg.--people love her and she has one table that way over-tips by an additional $30 b/c they're regulars and love Server B. ($250)
Server B pays 2% of sales to the SA working ($20)
Server B pockets $230

The marginal additional gratuity a server earns at our place is the same as the marginal gratuity (s)he takes home.

*Don't worry, they get paid a higher hourly wage.

[lukethedrifter]

do your servers not declare above the mandated amount?

[33anda3rd]

do your servers not declare above the mandated amount?

We give them a W2 that reports all their hourly and all the tips that we paid to them that we collected from credit card transactions, plus any wages earned on service charges for buyouts/private parties.

However or whatever they declare in their cash tips that are given directly to them by guests is between them and their IRS auditor.

[lukethedrifter]

do your servers not declare above the mandated amount?

We give them a W2 that reports all their hourly and all the tips that we paid to them that we collected from credit card transactions, plus any wages earned on service charges for buyouts/private parties.

However or whatever they declare in their cash tips that are given directly to them by guests is between them and their IRS auditor.

when i waited tables or tended bar not so many years ago, we declared our tips on our time cards and the employee used that number to turn in to the IRS.

as I've stated here before (I think), I declared 90+% of my net tips

[33anda3rd]

Yeah, when they clock out there's a box where they enter their cash tips. They can't clock out without manually entering something, even if it's zero, in there, and it's reported. I can only guess how accurate they are, but am fairly sure that some are more forthcoming than others.

[lukethedrifter]

Yeah, when they clock out there's a box where they enter their cash tips. They can't clock out without manually entering something, even if it's zero, in there, and it's reported. I can only guess how accurate they are, but am fairly sure that some are more forthcoming than others.

right. and they pool? hopefully they don't get audited. though it's been years, i have heard horror stories.