Quote:
Originally Posted by Bill14564
Please explain the difference between “tax free” and “DEDUCTION” and subtracting $25,000 before calculating taxes. If I subtract that amount as a deduction before calculating taxes then it really feels like I made that income tax free.
Yes, it is only $25,000 but it is a deduction that most of us won’t get.
Yes(2), it is a deduction from Federal income tax but is still subject to other withholding taxes and probably state income tax. But again, it’s something.
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There's no state income tax in Florida, so that doesn't apply here (though yes, it does apply in states with state income tax).
If you earn more than $25,000 in tips in a year, you have to pay federal income tax on everything above the first $25,000. That means - it isn't "no tax on tips." It's "tax on all tips beyond the first $25,000."
Math: $24.04 per hour is what you'd earn, just in tips, to earn $25,000 in tips in a year if you work 20 hours per week at your tip-paying job.
If you work the dinner shift at the FMK restaurants or places like Legacy Lopez CC, you'll be serving more than two tables per hour, and you'll likely be averaging more than $24.04 per hour in tips as a result. Add all those hourly tips up and at the end of the year, you will have earned more than the deduction you're allowed to take, and pay federal income tax on the balance. PLUS you still pay federal income tax on your hourly wages.