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Tips on CC transactions but not reported to employer

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    Tips on CC transactions but not reported to employer

    I have searched the forum for this answer and found a similar question from 2009 by BHoffman, but I did not find a response. I don't do payroll and I have no other clients with businesses where employees receive tips, so I am researching.

    I see where there is a penalty of 50% of the social security, Medicare and other taxes to the employee for not reporting tips to the employer.

    My client owns a hair salon. I do not do the salon accounting and Paychex does the payroll without any input from me.

    Client's expense sheet for the tax return I am preparing lists over 25K as "Employee Reimbursement" under expenses. She states this is tips to the employees and cashback that was included in the gross income on the CC and debit card transactions and the gross income amount she reported to me. I see from her W-3 that there are no tips reported through payroll because there is nothing in boxes 7 or 8. She states the employees handle their own tips. She keeps petty cash and when a tip comes through, the tip money is given to the employee.

    If the employees are not reporting their tips to my client is this a problem for my client/employer since it shows on CC transactions?

    I am not auditing her books. If I tell her to not include the tips given to the employee and the cash back to the customer in her gross income, is this a problem for me?

    Thank you so much for any information you can provide.
    Last edited by dmj4; 07-15-2019, 09:29 PM. Reason: clarity

    #2
    Originally posted by dmj4 View Post
    I



    I am not auditing her books. If I tell her to not include the tips given to the employee and the cash back to the customer in her gross income, is this a problem for me?
    Absolutely. You would be instructing client to commit fraud.

    Tips are being reported to employer. Whether or not it comes directly from employee rather than CC company does not matter.

    Seems like a clear cut case to tell client to be compliant with rules or go elsewhere for prep.

    Comment


      #3
      kathyc2, thank you for your response.

      Comment


        #4
        If you are looking for references see below:

        “What if an employee doesn't report tips to an employer?If your employees fail to report tips of $20 or more per calendar quarter to you, you can be held liable only for the employer's portion of FICA, and this liability does not arise until the IRS makes a written notice and demand.”

        See article regarding above statement by clicking on link below:

        https://www.bizfilings.com/toolkit/r...pped-employees

        see The Tax Book starting at 3-13 and also look at the index for more info.

        Also, Publication 531 - Reporting Tip Income
        Last edited by TAXNJ; 07-16-2019, 11:20 AM.
        Always cite your source for support to defend your opinion

        Comment


          #5
          Thank you TAXNJ, for the link, quote and references.

          Comment


            #6
            Originally posted by kathyc2 View Post

            Absolutely. You would be instructing client to commit fraud.

            Tips are being reported to employer. Whether or not it comes directly from employee rather than CC company does not matter.

            Seems like a clear cut case to tell client to be compliant with rules or go elsewhere for prep.
            I took your advice and I have told them I can't do the tax return unless they correct the payroll. Thank you!!!

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