This post is certain to ruffle a lot of waiter feathers. So be it.
1. It’s the legal responsibility to do so. If your neighbor who gets paid by paycheck has to fully declare all of their income for tax purposes, then so should you. Don’t be like the cheap tipper who doesn’t tip anything other than 10% because “he doesn’t have to” or “she can get away with it”. They are getting a free ride on the backs of their fellow guests and anyone who hides their income from the IRS is getting a free ride in society on the backs of their fellow Americans. If a big corporation were discovered cheating on their taxes by illegally hiding income, I’m sure most waiters would be pissed off. I know I would be. That’s why it disturbs me that so many waiters are willing to display the same behavior. You can say all you want that taxes are too high or you don’t want your taxes going to war, or “why should I do it when no one else is” or “I have to pay taxes on income I don’t make when I get stiffed” (a common fallacy that’s not true 99% of the time) or “All the IRS is looking for is 8% (also a big fallacy). All of these are simply rationalizations for unacceptable behavior.
2. It hurts you when you go to get credit. Most credit lenders want verified income. You can’t verify what you don’t declare on your W-2. They aren’t going to take your word that you make X amount in tips just because you say so.
3. You’re screwing yourself on Social Security down the road. Social Security is based solely on the income that you report to the IRS. Sure, some of you young pups might not believe that Social Security is going to be around with you. But why take the chance?
4. You’re really not saving that much in taxes. At the tax rate that most servers are at, for every $1000 that you don’t declare, you’re saving about $150 at tax time. Sounds like a lot of money, but is it worth the problems you’ll have if you get randomly audited or your restaurant gets hit by the IRS? The IRS doesn’t release how they determine audits, but it’s well-known that they target certain industries known for tax irregularities. Think you’re possibly in one of those industries?
5. It gives ammunition to those few cranks who don’t believe in tipping. It gives them the justification for saying that tipping should be abolished. They say that we are greedy little creatures who don’t even declare all of our income, so why should they subsidize that sort of behavior? Plus, they use it to justify their ideas that it should be the responsibility of restaurants to pay us so that we have to pay our taxes just like everyone else.
6. It reinforces the idea that tips are merely “gifts” from the guest. I’ve actually seen that idea tossed around and it drives me crazy. First of all, a tip is not a gift. It’s a payment for services rendered. A gift isn’t taxable up to $13,000 (in 2009) a year from a single source. And all payments for services rendered are considered ordinary income. Don’t give the wackos justification for this sort of view of tips.
Waiters (or any tipped employees) really don’t have any real excuse for not declaring their all income. We can rationalize all we want, but the bottom line is, it’s just the right thing to do. And it really is in the server’s best interest to do so. It’s just not worth all of the machinations or trying to figure out how much to declare. Just count the money in your pocket at the end of the shift after tipout. That’s your income. That’s what you should declare.
The only exception to this is if your restaurant demands that you declare a certain amount and they do it for you. Sometimes, they have agreements with the IRS to have all of their servers to declare a certain percentage of their sales and, in that case, you’re sort of locked into a figure. This is the IRS trying to capture a larger percentage of income through a sort of amnesty in a way. They say that if the restaurant signs an agreement, they agree not to audit the restaurant unless there is a serious discrepancy with future declared tips. They usually set a baseline based on past business. If your restaurant is having you declare 8% of your sales, they probably don’t have such an agreement with the IRS. The IRS surely will make them have you tip out at least 10% of sales because, let’s face it, if you’re not consistently making 10% after tipout, something is seriously wrong. In the old days, and by old days I mean pre-1995, 8% was what the IRS considered a minimum declaration and many servers and restaurants did the minimum. However, it ended up biting some waiters in the ass at audit time because the IRS would have the restaurant pull credit card receipts and compare them to what was being declared. Guess what the result would be? I know one waiter who got nailed for a $10,000 back taxes bill (that included fees and penalties). So, dismiss any talk of 8% when it comes to what you should declare for your tipout. that’s old old stuff. The IRS is clear, despite them making a few compromises through such things as TRAC agreements and the like, they are clear. You must declare all of your income.
And, before you ask, yes, I declare down to the dollar. I use the standard rounding technique that the IRS allows on their tax return. If it’s .49 or less, I round down, .50 or above, I round up.
So You Want to Be A Waiter
