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Daily Archives: May 8, 2009

Intricacies in tips and tip reporting

Many servers have no idea about what goes on in the internal bookkeeping of a company and the IRS requirements that companies have to comply with when it comes tip reporting.

If your restaurant is part of the TRAC program, you are aware that the reporting that you have to do as a tipped employee can be quite extensive. What you might not be aware of is the IRS requirement that you must keep a tip diary. At our restaurant, we have what we call TRAC sheets that perform the function of a diary and list all of the items that the IRS wants to see (cash sales, credit card sales, cash tips, etc.) However, the IRS requires that you keep a diary with your personal records. If you don’t fill out such a form daily at your restaurant and your restaurant declares a percentage for you or allows you to declare a percentage without listing the details, I would recommend that you go to the following IRS site to get the details of what is required. I would  recommend that even if you fill out a daily TRAC sheet,  you also keep a diary as well because, well, first of all, it’s the law. Second of all, if you get personally audited, you might have trouble getting copies of those TRAC sheets from your company.

The last thing you want is for the IRS to be estimating your tips three years after the fact during an audit because, they aren’t known as the most generous souls in the world.

There have been some new laws and new programs by the IRS that have come around in the past couple of years. The IRS has a new program called ATIP. It is run a little differently than the old TRAC (Tip Reporting Alternative Commitment) agreements. These are both voluntary programs that restaurants enter into with the IRS that reduces their chance of being audited. Also, the Small Business and Work Opportunity Tax Act of 2007, which increased the minimum wage, also had implications for the way tips get reported.

I found a really good site that gets into the nuts and bolts of tip declarations (mostly from the perspective of the business, not the server) and covers some of the issues raised in the preceding paragraph.. This is for the curious server who’s interested in the bookkeeping and the legal issues. There is a raft of articles on the right side of the page and I warn you that some of the material is tough to get through without a basic understanding of accounting principles, but I found it interesting:

You can never have enough knowledge, especially when it comes to your money.

One interesting thing that I didn’t know is that autograts are supposed to be paid as wages on a paycheck. Most restaurants just treat them as normal tips. What you might not know (which I did) is that technically, an autograt is not a tip and actually “belongs” to the restaurant, not the server, as is the case of tips. Tips are the sole property of the server, with two major exceptions – tipping out other tipped employees can be imposed by the restaurant and, in some states, the restaurant operator can deduct the credit card companies’ transaction charge. A normally non-tipped employee such as kitchen worker or manager cannot take any portion of a regular tip. this isn’t the case with an autograt or “service charge”. That is fully “owned” by the restaurant.

We’ll probably talk more about the ins and outs of tip reporting in the future.