Tipping...Does Money Say Thank You?

[radhak]

I am bad at tipping just because I'm never sure when it'd be appreciated, and when an insult .

In principle, I like to tip when completely optional/voluntary. The per-force added 'gratuity' in high-end restaurants raises my hackles.

I like to tip at restaurants, particularly when the person talks to us even a couple of words extra (other than taking our order). I can honestly claim that physical appearance has never changed my tipping behaviour, other than the once when the lady was serving us from a mechanized wheel-chair because she had a fall but did not want to let down her family-owned business; my daughters added some to my tip !

Our mail lady is dear to us - She always waits to talk to us, or admonishes our daughters if they are careless with traffic on the road - almost family. We tip her nicely, and she invariably leaves us a thank you card the next day.

I take a lot of pain to wait for and tip the trash guys - they are always in such a hurry, but whenever they see me outdoors they wave or yell a greeting, and I'm sure they don't get all that many tips.

I have never managed to see who my paper person is - I think s/he delivers at 4am !

The first thing you know, I have been volunteered. (That's me, Strong back and a weak mind)!

and a good heart! I think that there is a definition of a good man.

...
... even 20% tips earned in a two hour period over an eight to ten hour shift basically earns a server minimum wage.

I did not know that - and that's a shame. How about when I leave cash on the table, or hand over cash when they are cleaning up? Is that also counted just as the tip on the cheque?

[LCHIEN]

I'm curious - does anyone know the answer to these questions regarding tipping:
1. Does the restaurant keep track of the money tipped and report it as income? How else is the restaurant to calculate whether the servers make minumum wage and make up the difference? How is the government going to get its cut?
2 How prevalent is the practice of not reporting or underreporting tips - that's extra income to the servers - when we feel they are underpaid we forget that we are also supporting them with our tax dollars, in effect. (maybe thats a good reason for or for not putting the tip on the check rather than leaving cash).
3. Are tips pooled? e.g. the waiters all pool tips and split them up at the end of the evening. There's good reason for this - bus-boys also share and it keeps all the waiters willing to aid each other when the table's primary server is busy, to deliver food and get things when needed. OTOH, your generous tip for great out-of the ordinary service won't go the one providing it, and OT 3rd H, it means the old granny waitress gets part of the cute young waitresses' cuteness bonus.

[LinuxRandal]

Typically tips are pooled. How they are reported, verse how they are supposed to be, are two different things. I know a lot of it goes either unreported, or under reported, no different in that respect to you collecting, turning in, and reporting sales tax at a garage sale.

[woodturner]

How about when I leave cash on the table, or hand over cash when they are cleaning up? Is that also counted just as the tip on the cheque?

Yes, all tips are supposed to be reported, regardless of how received.

[woodturner]

1. Does the restaurant keep track of the money tipped and report it as income? How else is the restaurant to calculate whether the servers make minumum wage and make up the difference? How is the government going to get its cut?

Note: the following responses are based on discussions with bookkeepers, restaurant owners, managers, and servers in my area. There could be different practices in other areas, states, or countries.

The servers are supposed to report all tips when they fill out their time sheet - that's how they reconcile the average hourly wage with federal minimums. When they receive their paycheck, the total (wages+tips) are listed and the taxes are withheld, just like any other paycheck.

2 How prevalent is the practice of not reporting or underreporting tips - that's extra income to the servers - when we feel they are underpaid we forget that we are also supporting them with our tax dollars, in effect.

Underreporting is thought to be a widespread practice, and seems to be rarely prosecuted or enforced, at least in my area. I have been told that in some states, they "assume" a certain amount of tip income, whether reported or not, but I'm not really familiar with that practice.

3. Are tips pooled?

It varies with the restaurant. In this area, low to mid range "family dining" restaurants typically pool the tips, while upscale restaurants do not. For those that do not pool, the server is expected to share the tips with the busperson. If you have ever been in a restaurant and noticed that one server's tables are not being bussed promptly or are being bussed sloppily, it's likely that server is not sharing tips with the busperson. If the table is dirty or wet, etc. it reflects on the server and affects their tips, so that is sort of the busperson's revenge to a stingy server.

[LCHIEN]

Typically tips are pooled. How they are reported, verse how they are supposed to be, are two different things. I know a lot of it goes either unreported, or under reported, no different in that respect to you collecting, turning in, and reporting sales tax at a garage sale.

except a garage sale is a once or twice a year event and the main purpose is to clear the garage. A person grossing $200 maybe owes $14 in state taxes that really requires a lot of paperwork to collect and submit. I'd give them a bye on that.

I don't pay income taxes on the $5 I get from the county for jury duty, but that's every two or three years. Actually, I have been stupid (or honest enough) that I declared it as income in the past. So I owe maybe $1.60 in federal taxes - that's an insult considering how insulting $5 for a day of my time is worth. I do it for the civic duty.

But a person making the majority of their livelihood from but not reporting tips stiffs the other taxpayers every day for thousands of tax a year.

[radhak]

2 How prevalent is the practice of not reporting or underreporting tips - that's extra income to the servers - when we feel they are underpaid we forget that we are also supporting them with our tax dollars, in effect. (maybe thats a good reason for or for not putting the tip on the check rather than leaving cash)

I was wondering how did you think tips impacted our tax dollars, but your next post clarified your point.

But a person making the majority of their livelihood from but not reporting tips stiffs the other taxpayers every day for thousands of tax a year.

It might be a majority of their livelihood, but it might still not be too much more than minimum wage to amount to anything majorly taxable. Somebody care to put in some hypothetical numbers to figure out what sort of money a cute waitress could make in unreported tips?
(I would take a shot, but I am at an airport worrying about my laptop battery running out and my plug does not fit the wall socket anywhere so don't have the time...)

[LCHIEN]

radhak, most laptop chargers take 120-240V so just find an adapter.
But, you challenged me.

As for a cute waitress, lets take my local Texas Roadhouse where they are cute (they are even cuter at Hooters). Lets say the typical bill for 2 runs $40 for two entrees and a couple of drinks. That nets a $6 tip. Lets say she serves 6 tables simultaneously and in an 8-hour day does between 2 and three seatings per dinner and 1-2 at lunch on a busy day.

that's $144 per busy day, lets take 66% occupancy for slow days and 5 days per week, that's $475 per week. Assume the restaurant kicks in $3 per hour x 40 hours so another $120 for a total of $595/week. - she makes almost $15 per hour.

So she has $30,940 annual gross income.

SO far I made up all these numbers but they seem realistic to me.

THree cases ( all based on the above assumptions plus the 2011 IRS tax tables):
If she is single and reports $30,940 (because she is honest or because the restaurant takes full accounting of tip money or accurately estimates it and reports it on the W-2) then she will pay $4214 taxes (2011 IRS tax tables)

If she is single and reports only $6240 (the $3 per hour wage) paid and reported by the restaurant on a W-2 - $623 tax avoiding $3591 in tax - an extra 11% for her.

if she is single and pockets half the tips paid in cash ($12350) and the restaurant reports the other 50% of tips paid on charge slips+hourly wages of $3 and she reports only what the Restaurant posts on W2 form ($18590), then $2361 tax, avoiding $1853 in tax - an extra 6% for her.

Obviously the latter 2 scenarios requires some wink-wink at the restaurant which is beneficial to them since she nets more money they don't have to pay her as much - basically a subsidy at taxpayer expense.

I'll have to add at this point I am not entirely against this. If I eat out frequently and my neighbors don't then I am benefiting from taxpayer subsidy and my neighbor is paying for part of my meal expense.

[cwsmith]

I can only tell of the short time that I was a "bus boy" all too many years ago. We were a "daytime" restaurant attached to the largest department store in the area.

I made minimum wage, the dining room waitress' made about 60% of that, because they got tips. A waitress working the "counter" made about 20% more than I did, but there was no tipping allowed at the counter, and there was a sign posted as such.

I was the only "bus boy" in the dining room and the waitresses were not expected or asked to share any of that with me, because my pay was not a "tipping wage".

One of the quickest ways to get fired was to take the tips that were left on the table for the waitress. If you earned the trust of a particular waitress you might retrieve the tip for her, but you had to be sure of that fact. The two previous bus boys had been fired for that. I had great respect for all the women that I worked with and that job, though probably the most unskilled one I ever had, was a heckuva lot of fun... thanks to the manager and the attitude of the waitresses I worked with.

At that time and in that place, a waitress earned her tips, and there was no pooling or sharing with anyone that I was aware of (I've heard that in other restaurants that policy might differ). I do know that they did have to report their tips though.

Of course that was a long time ago, and probably almost everything has changed.

CWS

[gsmittle]

My #2 son waits tables at a local pancake establishment that shall remain nameless but you can find them all over. He's far from cute, but makes a respectable amount in tips.

At his restaurant they do not pool tips, but are expected to kick in for the bus person and/or any other server that helps out with a big group.

As I understand it (I don't pay close attention to this because he talks alllll the time and it involves numbers) he reports all tips at the end of his shift. Taxes are withheld from CC tips automatically, and his average tip plus wages for the week has to equal minimum wage. I don't think the restaurant makes up the difference if he's short. My understanding is he has taxes withheld as if he made minimum wage for the weekly hours he works. For example, if he works 10 hours a week, he's on the hook for 10 hours worth of minimum wage withholding tax. Seems like a bookkeeping nightmare to me, but the closest I've ever come to waiting tables is delivering pizzas while in grad school.

g.

[radhak]

radhak, most laptop chargers take 120-240V so just find an adapter.

I looked, and amazingly, the whole airport did not have an adapter for US plugs! Rest of the world, yes, but not US!

Anyway, I reached home yesterday before Christmas was over - small mercies!

Your numbers are very good Loring - I've not been to Texas Roadhouse, but can believe the scenario you have drawn up.

But, you forgot standard deduction - her taxable income less SD of $9500 would be $21440. The tax for that would $2789, if she reports it all. If she reports half, her taxes would be $936. This might be nearer reality, and so she 'earns' a benefit of around $2000.

Good to know, Loring, thanks. And I also agree with your sentiment - I don't mind the money going to the server.

But I am not sure you (or I ) are getting tax subsidy. The server is benefitting, and maybe the restaurant in a round-about way, but not anybody else.

[Ozzie]

I have a rule that I do not tip persons who earn more money than I get from my retirement/SS. The exceptions are waiters and waitresses whose pay is partly dependent on tips and who provide good service. I usually tip 20% of the bill before taxes are added. I have been known to leave .02 as a tip when I got terrrible service.

[TK421]

For employers who take advantage of the Federal Tip-Credit Law (restaurants, food-delivery joints, and some farms):

1. All tipped employees are required by Federal Law to report ALL their tips to their employer. Either directly to the employer at the end of shift or weekly via IRS provided form.

2. For the employer to be able to claim "Credit" for the employees tip, the employees combined hourly wage + tips must be > or = to $7.25 per hour (or more depending on the state you live in). Otherwise the employer has to make up the difference.

I used to work delivering pizzas part-time. My company claimed tip-credit. When I was out on the road delivering I was paid like a waiter (half of min. wage). When I was in the store I got paid full min. wage.

My company only wanted you to report tips up to the point where it covers min. wage. They don't want you to report more because they have to pay SS tax on all reported income.

So, under-reporting of tips is unofficially encouraged.

Not reporting of tips results in; a) S.S. taxes not being paid (which depending upon who you are, you may or may not view that as a good thing). b) problems getting loans or credit. And c) see next paragraph

Now if your a waiter or delivery person and you get audited by the good ol' IRS, bring your petrolatum cause your gonna get screwed hard . The IRS will penalize and fine you on what they think you should have made based on some archaic formula they have. Its always a lot more then you actually made.

To those who might have concerns about folks who earn their money from tips not claiming them and paying their taxes on said income, pay with plastic and the tip is automatically reported. (Unless the place has an old-school embossing style machine with the carbon slips, etc. I haven't seen one in years.)

[LCHIEN]

thanks for the info. you hear what the laws are but you don't know what actually goes on until you hear some insider stories.

At one time i used to leave cash tips figuring they'd do better (probably by not reporting cash income) but then as I paid more taxes I thought hey why should they not pay taxes while I pay out the yang and I started leaving tips on the CC. Now I never know what to think. Another reason - MY wife always asks me when I leave a cash tip if the bus boy or another customer will steal it before the waiter gets it - I always said it must work OK and its their problem - I did my part.

[cabinetman]

The IRS will penalize and fine you on what they think you should have made based on some archaic formula they have. Its always a lot more then you actually made.

Taking that archaic formula and applying it to other sources of incomes, the IRS has a pretty good idea of what's true and what's not. I survived three audits. Whatever their archaic formula is, they can put together some simple facts (for a cabinet/woodworking shop), by location, amount of material purchased, number of employees, and claimed fixed expenses, come very close to what the gross and net income should be.

.