Quote:
Originally Posted by Michael G.
If their tips are cash, minimum taxes are do and many are reported.
If tips are added to a credit card, all taxes apply.
Also, is it rude to ask your waiter if tips are pooled or not?
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Restaurant servers get special tax treatment from the IRS, called the 8 percent rule. The restaurant is required to calculate 8 percent of the restaurant's gross income, and prorate that amount to each server's W-2 income form as tip income. Then, the server can either report and pay income tax on that amount, or they can report a lesser amount and be subject to an IRS audit. So, even if they make more than 8 percent in tips, they only need to pay tax on the calculated 8 percent, and they will not be audited.