Quote:
Originally Posted by ITD
On top of that, I recently found out that tips given via CC have 39% taken off the top as payroll deductions for taxes here in Mass. (probably less in NH due to no state income tax, but maybe not, I don't know.) Now most of the servers I know are no where near in that income bracket, so they must wait until tax time to get the rest of their income returned to them from the IRS.
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Every employee of every company is required to pay taxes based on their income. Servers at restaurants who receive a cash tip are no different.
The difference you are talking about is what the servers
claim as income.
-If a customer gives them a cash tip, the IRS requires them to claim 100% of that. Some do, some don't. But that is the law.
-If a customer gives a credit card tip, there is documented proof of income, so it really has to be claimed.
The IRS knows approximately what a server makes in tips based on their sales. So if a server is not claiming 100% of their tips (cash or credit), chances are the IRS can figure it out fairly easily.