Quote:
Originally Posted by Number 10 GI
Out of that tip money they have to pay the same taxes everyone else pays. My granddaughter worked as a server while in college and she did make good money on tips, but nothing like the amounts cited above. The government has enacted laws that makes it difficult for a server to claim less money in tips than actually received. There is some wiggle room to cheat but not that much. I've never heard of a restaurant providing health care coverage for servers, so out of the tips received they must also pay for medical insurance which isn't cheap. I've known quite a few people who have worked as servers and they struggle to keep up with living expenses.
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The IRS has an 8 percent rule for restaurant tip income. The restaurant totals up their gross income and multiplies it by 0.08. Then, they issue W-2 income forms in that total amount to the tipped employees, pro-rated by the number of hours they worked during year. The employee who receives the W-2 form has two choices. They can pay income tax on the amount shown on the W-2, or they can claim to the IRS that they made a different (lower) amount and be prepared to prove that lower amount in an audit. So, if a restaurant server makes an average of 16 percent in tips, they will only need to pay income tax on half of their tip income. It is an IRS rule and not considered cheating.