I am a new restaurant owner. What is my tax liability for the servers’ reported tips? And what if my servers don’t report all their tips to me?
On reported tips, a server is going to pay Social Security and Medicare tax, and the liability is going to be 7.65 percent, according to Randy Wright, a CPA from Markham Norton Mosteller Wright & Company. But not all servers report their tips, says Wright, and a restaurant owner could be liable for unreported income.
According to the IRS Web site, "If the employee does not report tips to you, it places you at risk of possible assessment of the employer’s share of the Social Security and Medicare taxes on the unreported tips." If you have more than 10 employees at your restaurant on a typical day, you are required to allocate tips if the total tips reported to you are less than 8 percent of gross revenue.
There’s another good reason to encourage your servers to report tips: the FICA tax tip credit. "If an employer is paying someone $3.15 an hour and their tips get them to $8.15 an hour, that exceeds the minimum [wage, which increased Jan. 1 to $6.79 per hour] and the employer is entitled to a FICA tax tip credit," Wright says.
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