Tip splitting

[dkss]

I have a client who is a tipped employee (waitress). She is required to split the tip with the bartender (bartender gets 2.5% of sales). She reported all of the tips prior to giving the bartender their share. Now she is saying that she was told to have the amount she gave the bartender put on her return as a negative number on line 21 with a reason of tip-out. I spoke with another tax office about this and they do it all the time. This does not seem right to me. I think she should not have reported the bartender share of the tip in the first place. Am I thinking too much on this?

Any insight would be appreciated. Thanks in advance!

PS No allocated tips on the W-2 and she did not keep a tip log. She did supply me with a print out of total sales.

[BP.]

Check out Pub 531. There are more details for you there, but here's an excerpt:

"If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report to your employer any portion of the tips you receive that you pass on to other employees."

[dkss]

I have looked at that - but the issue is she included in her tip income the amount she gave to the bartender. I have already advised her to change the way she reports - but she says her work requires her to report her tips before she gives the portion to the bartender.

[Bees Knees]

I have looked at that - but the issue is she included in her tip income the amount she gave to the bartender. I have already advised her to change the way she reports - but she says her work requires her to report her tips before she gives the portion to the bartender.

The requirement to report tips given to the bartender by her work is wrong. Print out a page from the IRS Pub cited by BP so that she can educate her employer.

In the meantime, since the tips that are not suppose to be on her W-2 are in fact on her W-2, make a negative adjustment on line 21 of Form 1040 and attach an explanation. Then tell her in order to avoid possible hassle by IRS over this wrong way to handle things, make her employer do it right in the future.

[dkss]

Thanks

Thanks for the responses. I have already planned on giving her a copy to pass onto the bigwigs at work. And I will show the negative income on line 21 - this year.

I am new to this board, have been lurking for a few months. Thanks again

[BHoffman]

To Bees Knees Are you Sure?

I have a new client, a waitress, with the same problem as above. Prior preparer listed "Busser tip-out" on Ln 21 as a negative number, same as you suggested.

Should I dare report it again in 2007? I printed out the IRS pub page where it says tip splits shouldn't be reported on her W2 anymore.

Thanks for any advice.

[Bees Knees]

I have a new client, a waitress, with the same problem as above. Prior preparer listed "Busser tip-out" on Ln 21 as a negative number, same as you suggested.

Should I dare report it again in 2007? I printed out the IRS pub page where it says tip splits shouldn't be reported on her W2 anymore.

Thanks for any advice.

If you re-read my post, you will note that I said it was wrong to report the tips given to someone else as a negative number on line 21. But what other choice do you have, after the fact?

[BHoffman]

Thanks Bees

Do you think this would require disclosure? She is reporting $18k in tip income and says she paid out $6,700 to the busboy. That sounds high to me, but I haven't waited tables in a very long time

[Bees Knees]

If she has a log book, I don't think it requires disclosure. You always have a better than 50% chance of winning if your client keeps a log.