tips and employers

[mattbau43]

Hello,
As many of you know I started delivery this week. I have kept track of my employees tips so far. How do these need to be reported? Do I report them, does the driver? Thanks!

 

[brad_randall]

Check out the IRS Circular E, it has some basic information about tips:
IRS:

Collecting taxes on tips. You must collect income tax, employee social security tax, and employee Medicare tax on the employee’s tips. If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax.

You can collect these taxes from the employee’s wages or from other funds that he or she makes available. See Tips treated as supplemental wages in section 7 for more information. Stop collecting the employee social security tax when his or her wages and tips for tax year 2008 reach $102,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. You are responsible for the employer Medicare tax for the whole year on all wages and tips. File Form 941 or Form 944 to report withholding and employment taxes on tips.

There are other specific forms & things on www.irs.gov - do a search on “tips” on the site.

Edit: I would have linked the reporting forms, but my browser keeps locking up every time I try and open up a .pdf file today.

The important thing to remember is that the FICA taxes you match on your employees tips (above minimum wage) come back to YOU (the employer) as a tax credit! Be sure to ask you tax accountant about this one - it’s big.