So You Want To Be A Waiter

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Why you should claim all of your tips

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.


11 responses to “Why you should claim all of your tips

  1. waiterextraordinaire June 23, 2009 at 8:29 am

    Oh darn it!!!! Now the fridge that just broke down I have to wait to buy.The kid’s dentist checkup has to wait so maybe their teeth will rot. My wife’s medication has to be put on hold for now. The dryer is on the fritz and we need a new one. The kid’s education savings plan forget about.The couple of dinners my wife and I go out during the year maybe we should just put aside.
    Dave I like your blog but everyone is different. The person who waits on tables may have schooling to pay for and not need a loan if he or she can pay it with her tips. I tell you something for sure if waiters were treated as an equal by first their employers who didn’t regard them as just passerbys who could be here today and gone tomorrow and governments who allowed them to write off such things as dry cleaning , gas expense and other things then maybe yes waiters would then be encouraged to declare all their tips.
    Now I am assuming you are single or your wife makes $100,000 a year that makes you believe in telling us what you have just posted. Everyone cannot claim everything or there would be no waiters or bartenders working right now. The employers will not pay more it seems at any point in the future to cover slow times. I can tell you income wise the first two weeks of this month compared to last month my wife and I were down $500 a week. We are both waiters. Think about that one. If I didn’t have a bit saved up we would have been screwed.

  2. teleburst June 23, 2009 at 12:15 pm

    I understand where you’re coming from, but really, you are justifying something that isn’t really justifiable. Income is income, whether the kids need braces or the fridge just broke or you’re going to school. There’s legally (or morally, in my mind, especially if you believe that everyone should shoulder their share of the cost of running the country) no exception for income paid in cash. If you are an hourly worker (and there’s no particular company loyalty to them either), you have fridges that break and kids that need braces too and schoolbooks to buy. Sure, there aren’t times when your income drops because of the season, but there aren’t also times when their income doubles either or they have $200 days. And, let’s face it, most of them make a lot less per hour than we do when you run the numbers for a week, month or a year. So I’m not sure that that particular argument is a strong one.

    What makes us any different than the gal who works in a clothing boutique? She doesn’t get gas mileage or dry cleaning deductions (and other things) either. She might also be paying her way through school but because she doesn’t get paid partially in cash, all of her income is automatically declared. And she’s probably only making (US)$12 an hour. Why should tipped employees be any different?

    And the fact that our income is variable isn’t much of a justification either. That’s part of deal when we sign on to this crazy lifestyle. We’re all down right now and yes, when tax time comes, I get hit harder than you do by a couple of hundred bucks because I claim everything (don’t know what your tax rates are in Canada though). It’s hard on even single people, I can tell you that. To me though, it’s a small price to pay for piece of mind and satisfaction that I’m playing by the rules.

    One of the things we have to accept in this business if we are professionals is that there are going to be lean times, even in the best of years. And we are no different than everyone else in this horrible economy. I took an $8,000 hit last year vs. 2007 and will probably even be lower this year. But I still pulled in at least 60% more than I would have made in any other “service sector hourly job” and more than some hourly managers make.

    As long as my neighbor doesn’t get to write off her commuting expense or her dry cleaning bills, I’m fine with not being able to write mine off either. That’s the whole thing. We should all play by the same rules.

    This is a mindset that’s especially engrained in oldtimers like us. And I know I’m not going to change very many minds either. But I feel like someone out there should be pushing for us to do the right thing, especially as you hear more and more people bitching about the tipping system and using the fact that many waiters (if not most) are illegally underdeclaring their income as an argument against it. Everytime I bring it up to a fellow server, someone says, “Are you stupid? We pay too much tax anyway. Plus, are you stupid?”. Well, the “too much tax argument” is an issue that can be addressed at the ballot box. If EXXON said in response to being found out that they were illegally hiding income, “Well, we decided that our tax burden was too high so we decided to move some of our income into this secret slush fund”, I’d rail against that and I think most people would.

    Just my .02.

    Told you I’d rattle a few cages .

  3. PurpleGirl June 23, 2009 at 12:43 pm

    Although I agree everyone should claim what they make, I don’t agree with some of the methods of forcing it. Our system is a total pain in the ass.

    The credit tips are automatically entered, and there is no way to claim less than your credit tips. So on a night when I make $50 in tips, all on credit cards, I have to claim $50, no way around it, which means I’m paying taxes on the tip I gave to the bartender. Strangely, if my credit tip percentage is low I have to get a manager swipe, even though there’s no way to fake it.

    If I make $45 in credit tips and $5 in cash, and I give the bartender that $5, I have to track down a manager and have them swipe their almighty card because “Your cash tip percentage is 0%! This appears to be too low!” Same thing if more than one table leaves a poor tip or stiffs me.

    And sometimes I can’t find the manager, or they can’t find their card …. and I’ve worked with somebody who simply would not swipe people for their tip out, forcing servers to stand at the computer and keep entering increasing amounts of money they didn’t make until the computer would accept it.

    Because of instances like that, I don’t always claim every dollar I made that particular day. If I had to claim a ten dollar bar tip-out on Friday, then Sunday and Monday I’ll try to claim less to balance it out. Hopefully it’s fairly even.

    • teleburst June 23, 2009 at 1:10 pm

      See, that’s the thing. This is also technically illegal (in a way that hurts YOU). You are NOT required to claim income that you don’t make. The IRS doesn’t expect you to pay taxes on your tipouts and neither should your restaurant. Nor would the IRS look kindly on “making it up” on the cash tips, which is what your restaurant is requiring you to do. This is another reason why we should claim everything routinely. The assumption is is that we don’t, so there are all of these clunky workarounds. Fortunately in my current restaurant, we fill out a TRAC sheet that outlines cash and credit card sales, cash and credit card tips and each tipout. After subtracting the tipouts, we get the number that we declare. It’s a little more work, of course, but it covers us in the case of an audit. Sounds like the management is too lazy to do it the right way.

      It does sound like that you’re at least attempting to do the right thing and claim generally what you’re making under a system that’s screwed up. I hope more people end up thinking like you and more restaurants start doing it the right way as well. One of my fellow bloggers’ restaurant (G.H.) actually only claims 8% for them. This is definitely wrong and it make it hard for someone to do the right thing on their own (surely they don’t want one person declaring the real amount because it would set off red flags).

      Thanks for weighing in. I suspect you won’t be the last :g:.

  4. CPT D June 30, 2013 at 2:06 pm

    Why didn’t you discuss any legality of the issue at hand. Lacking to say the least.

    • teleburst July 27, 2013 at 11:19 pm

      Errrrmm I *did* discuss any legality. On the assumption that this isn’t just a bot responding to the word legal, you sir or madam, are an idiot.

      “1. It’s the legal responsibility to do so”.

  5. pierre October 26, 2013 at 8:05 am

    Who cares what the IRS regards as legal and moral. I do not believe the government has a right to take any cash given to me privately and in discretion no matter what the matter is…ESPECIALLY when they are using the money to fund things that the majority of Americans supplying the money do not support!!….so yes I believe we should all do our share in running the country, but that does not mean we should just let the government milk us at every corner. The government doesnt need our tax dollars as much as you think they do. When they need money, it is simply printed out nowadays, and when theyve “spent too much” the debt ceiling is simply raised. If the government cant spend its money correctly, manage its books, and obey the constitution, they dont deserve a single dollar I make. Imagine if government tax revenue was somehow cut in half…what would happen?? A) that would be about a trillion dollars more in the citizens in one year….wow!!! and B) the government would have to cut its budget by a trillion dollars……..Oh my goodness that means we might have to stop dropping bombs on yemen, invading countries, ensuring we have the highest incarceration rate in the world, giving food stamps to 43 million people after the government forced them into poverty in the first place! Hell, the government might even have to stop spying on the phone calls of the german chancellor and shipping guns to mexican cartels!

    • teleburst October 26, 2013 at 9:14 am

      Who said anything about the IRS considering moral issues? I certainly didn’t. *I* consider it a moral issue. You can feel free to be a tax protester and simply not file your taxes. You can rail against the system and I’d say “More power to you, brother”. But I’m not here to debate the size of government, the “morality” of the tax system itself, American foreign policy, etc. Nothing you wrote justifies hiding your cash tips. Your second sentence *tried* to do that, but failed. Cash tips are still part of a public commercial transaction. They are not a “gift”, but payment for services rendered. They are *income*, which you are responsible for paying taxes on, simple as that. My points are these – there is *in my mind* a morality issue when others don’t get to hide income, the less you claim, the less Social Security you will receive (and it will be even *more* drastic if younger folks fears of drastic cuts occur in the future), and you eliminate the worry of an audit (yes, I know someone back in the 80s who ended up paying something like $18k back after such an audit).

    • teleburst March 29, 2014 at 1:16 pm

      Then get the tax laws changed. Until then, STFU.

  6. eaglet November 2, 2013 at 1:50 am

    Tips are a gift. A service charge is payment for services rendered. Your paycheck is payment for services rendered. Obligatory tipping is perhaps the most obnoxious thing about American culture, giving employers a way out of paying a proper wage to their employees.

    • teleburst November 5, 2013 at 9:51 am

      No, tips are a legal part of the commercial transaction of dining out and therefore “payment for services rendered”. This is bolstered by the fact that tips are considered ordinary income and therefore taxable. If they were indeed “gifts”, they would be excluded from taxation up to ~$10,000 per “gift”. Additionally, “service charges” legally belong to the establishment, not the tipped employee. The payment scheme itself is worthy of debate. You have voiced one such side of the debate. I would counter that menu prices are based on the concept of tips. Change the wage structure and you increase the menu price commensurate with the amount that currently goes to tipping. In doing so, you have just reduced the consumer’s chance to reward or penalize the level of service provided to said consumer. This removes a tool from the consumer’s toolkit. This is self-defeating to the consumer that advocates such an approach.

      The vast majority of American consumers have become accustomed to a system that has been in place in its current form for over half a century and in place in one form or another for over a century. Changing it now would be a disruption detrimental to all parties. I would say the same thing about dining cultures that don’t feature this dependence on voluntary tipping as a major direct source of income. I don’t advocate our system over theirs and wouldn’t advocate changing that system either.

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