The thing is, bartenders and servers rely almost solely on their tips, often all of which are received in cash. Our checks are then taxed and depending on how much of your tips your employer is claiming, they can amount to literally nothing. I’m talking voided checks or or ones worth pennies.
So, to help all those hospitality workers out there, here are some things you should know about your taxes.
What I Should Report?
Most likely your employer is reporting your tips for you and taking the requisite taxes out of your hourly paycheck. However, your stingy hourly rate may not be enough to cover the taxes on your tips. This is why most of us owe the tax man come filing time.
Technically you should be reporting all of your tips, cash and credit card. Some restaurants fudge this information as conventional wisdom has it that the IRS assumes you’re only making 8% of your sales in tips. However, this isn’t exactly the case. Following this advice could leave you at risk for an audit, especially if you’re claiming something below this threshold.
It is always wise to claim all of your tips; you’ll be thankful later when you’re not getting audited. Here is the IRS page about tip reporting.
What Can I Write Off?
One major piece of advice we have for tipped workers is to keep careful track of what you’re tipping out to busboys, service bartenders, etc. If this isn’t being factored into how your employer claims your income, you could end up owing more then you should. You aren’t required to claim money you didn’t receive. So, have a chat with your manager about whether they’re claiming your income before or after your tip outs.
If your employer doesn’t reimburse you for uniforms and shoes, you can and should write them off. Be sure to keep all of your receipts just in case. If you buy your uniforms from your restaurant or bar, just ask them to make you out a simple receipt. As long as they are required for the job and unsuitable to be worn outside of work (I’m looking at you, khaki Polos), you can write them off.
Any Extra Training or Classes
Did you have to get a food handler’s certificate or become TIPS certified to keep your job? If so, save those receipts and write those babies off!
Credit Card Processing Fees
Although rare, if your owner is passing on the cost of accepting credit cards to you, you can write off the processing fees as an expense when you file your taxes. Consult the IRS or a tax professional for more information on write-offs.
My Paycheck is Confusing, Help Me
Firstly, find out what tax bracket you fall into by looking at your paycheck and extrapolating it for the entire year. While this may vary, it should give you a good idea of how much you’ll be claiming. Remember, you’re looking at your “Total Pay”, not your “Net Pay” which is only what you’re taking home in your check.
Next, check out the tax rates in your area since you’re expected to pay the Federal government as well as the state. This will help you understand what percentage of your income the IRS expects you to pay.
There are plenty of resources and tax calculators to help you out with this. While we don’t recommend taking these as gospel truth, it’s really nice to know the general amount you need to be socking away for taxes. If you often get voided checks from your establishment, there may be a shortfall. This means you will owe money because your hourly rate is not enough to cover the taxes on your tips.
How Should I Budget for Taxes?
The general rule of thumb is to allocate 10-15% of what your total pay is every week for taxes. If you get into the habit of doing this, and placing it into a separate account, you won’t even miss that money. Then when it’s time to pay up, you have what you need (hopefully) ready to go. While this is obviously not foolproof, it’s a good start and if you have money left over after paying the IRS, hallelujah!
We hope this article helps you figure everything out. However, we are neither lawyers nor tax accountants so you should always seek professional advice if you have any questions about your taxes.
BOTY connects people at the bar. We make the bar experience more enjoyable for all involved.
Our community and resources support and empower the individuals who comprise this industry. We seek to change the stigma of frequent bar goers and promote the bartending profession as legitimate career choice.