Tips being reported as income are handled one of two ways. My company requires the servers report 100% of their tips as income. They write on their time cards at the end of the shift how much they earn. It's their responsibility to report their tips.Originally Posted by Lois Lane;2302419;
The IRS uses 8% of a servers sales as a guideline for how much tips they earn. Some restaurants will take 8% of each server's sales and automatically use that as their reported tips, freeing the servers from reporting their tips themselves. This is accepted by the IRS. That is how the myth of "That they assume you would've gotten a certain amount in tips and tax you on that...even if you may have gotten stiffed by a lot of cheap customers" gets around. I guarantee you that most servers make way more than 8% of their total sales in tips on average. This figure is low to allow for the "stiffs" that occur during their work shifts.
The other myth that servers don't ever get paychecks is perpetuated by the fact that they must pay taxes on this income and their hourly wages paid by the company are used to pay the taxes they owe on their reported tips.