Delivery fee & Tips -- Expense??

Hello all!

Are delivery fees & credit card tips expense items? or do you pass it back to the driver as taxable income? Thanks.

~pieslave

Delivery fees are handled differently by different owners. Some owners keep the fee, others give it to the driver, some split it in various ways. If the driver is driving his or her own car, the store can reimburse the driver for that use, the reimbursement (subject to some rules and limits) is deductable as an expense to the business and is NOT taxable to the driver. If the store reimburses for vehicle expenses and gives the driver the delivery fee as compensation, I would suggest you talk to your accountant. Most likely it would be considered compensation to the driver and be taxable to the driver and subject to withholding and matching contributions from the business.

Tips are taxable earnings for the driver and you give them to the driver. Some businesses will pay out the CC tips that day, but I think more add them to the paycheck. You need to declare them as income and wages and matching withholdings are taken from them.

I am sure others will chime in but here is how I do it:

Delivery charge: This is my money. It is an income category, it goes to the bank. If the driver is driving his or her own car, I pay them 6% of deliveries as “mileage”. The number is not connected to the delivery charge, but the delivery charge does help to offset it.

Tips: We do not take CC so I do not have your specific issue, but since I pay $6 to drivers which is below minimum wage now, the drivers to have to declare tips. In our case they are all cash not CC but the effect is the same, taxes are withheld and the appropriate things like FICA paid by the busines.

One nice thing is that the business portion of the FICA tip taxes you pay above minimum wage come back to you on your personal taxes in the form of a “tip-tax credit.” Be sure to ask your accountant/tax person about this as that’s a HUGE incentive the IRS has put out there to encourage business owners to encourage employees to declare their tips!

The flip side of this is its harder to get drivers.

If you are paying less than minimum wage, declaring tips is not optional for the employer. As long as they make over the minimum it is up to the driver to declare them but since our drivers are already the best paid employees we have (on an hourly basis) I could not see giving them a raise just to avoid the reporting. In any case, when we are busy, the money they make is so good, we rarely have trouble finding drivers. Having to declare tips does not seem to have slowed them down any.

Ah, so that’s why when I worked at the Casino, before you were allowed to leave for the night, you had to count all your tips, report it, and pay out the 35% right there.

depends on what you want to do with the delivery fee. You could use it as a way to compensate the driver for the fuel and maintenence. If you charge 2.00 for delivery and give it to the driver, it’s not an expense since the customer is paying that fee. with the cost of gas these days I suggest giving the driver as much as possible. Where the expenses come in is in the insurance you have to have for delivery drivers.

Credit cards are an expense you have to pay. A lot of businesses are no longer accepting cc/debit cards for orders less than 20 dollars or some value similar. Either that or they are charging the customer for the increased cc/debit card fees. They are rising.

Thanks all for the info.

We have free delivery but pay our drivers minimum wage plus $1 per delivery. Been in business now for over 2 years and finally have time to step back and look at some details of the business that have been long overlooked.

So looks like we have been paying taxes on all CC tips for the last 2 years since they were inadvertently lumped into sales. Also the $1/delivery driver fee hasn’t been expensed out. Will have to talk to our tax person and see what can be done retroactively.

Have a great week everyone!

~pieslave

AD guy,

I think you should check with your accountant about how you handle the fee. If you charge that $2 you are going to end up in hot water if you don’t recognize it as revenue regardless of what you do with it. Yes, the customer is paying it, but they are PAYING IT TO YOU even if you let your driver keep it. You are including it in the price you quote to the customer.

That $2 is “sales” to you and in many places (but not all) is also subject to sales tax. (Depends on whether your state taxes services). How you pay it to your driver can vary. If you give it to them as “mileage” it is and expense to you and NOT income to them as long as you meet IRS guidelines for mileage reimbursement. If you pay it to the driver as part of the compensation (for example if you pay them mileage also) it is income to them and subject to all the taxes and withholding INCLUDING employer share of FICA, Medi and things like unemployement and work comp.

Either way, that $2 should show up coming in AND going out of your business to stay kosher with the taxing entities…