Giving gratuities -- or tips -- is a common practice at restaurants in the United States. Even though tips are not necessarily required, tipping has become such a standard practice that the minimum wages for tipped employees are often lower than they are for other workers. Regardless of how much you make in tips and wages, it's your responsibility to report your tips so that you're paying the right amount in taxes.
What You Can Expect to Receive
In restaurants with table service -- meaning a server takes the order at the table and brings all the food and drinks -- you can expect to receive between 15 and 20 percent of the bill total. Restaurant patrons tend to pay 15 percent for standard service, and between 18 and 20 percent for excellent service, according to "U.S. News." In a quick-service restaurant or one with counter service, tips tend to be optional and amount to 5 to 10 percent of a purchase. In these establishments, tips may be pooled and fairly distributed to all employees at the end of the day.
Minimum Wages for Tipped Employees
The minimum hourly wage for all employees in the United States is $7.25, as of September 2014. The federal government allows employers to count tips as wages, however, and to pay workers as little as $2.13 per hour under the assumption that tipped workers will earn tips that elevate their incomes to at least $7.25 per hour. If an employee doesn't earn $7.25 an hour, the employer is required to pay the difference. Some states require employers to pay employees the full state minimum wage, regardless of how much an employee earns in tips, while other states offer a range of hourly wages.
Reporting Your Tips
In many restaurants, servers receive a combination of cash tips and tips that guests add to their credit or debit card tab. Many employers use a computer system that tracks the credit and debit card tips, and allows servers to report cash tips. That makes it easy for you to keep track of how much you've made in tips and how much money you owe the IRS from your wages. If your workplace doesn't have a computer system that helps you track tips -- or you want to track tips on your own -- use IRS Form 4070A, called the Employee's Daily Record of Tips. You're also obligated to report your tips to your employer. For that, you can use Form 4070, the Employee's Report of Tips to Employer.
Your Employer's Responsibilities
As you report your tips, it is your employer's responsibility to determine how much money to withhold for income taxes, Medicare and Social Security. When you serve a table of more than six or eight people, your restaurant may automatically tack on a gratuity of 15 to 18 percent. As of January 2014, the IRS began treating automatic gratuities as service charges instead of tips. That means the restaurant must add the "service charge" to your paycheck and withhold taxes from it, instead of having you report it yourself as a tip.
- The Wall Street Journal: IRS Rule Leads Restaurants to Rethink Automatic Tips
- Internal Revenue Service: Tax Topics: Topic 761 - Tips – Withholding and Reporting
- United States Department of Labor: Wage and Hour Division (WHD): Minimum Wages for Tipped Employees
- U.S. News & World Report: Your Ultimate Tipping Guide
- ABC 7 Chicago: Governors Quinn and O'Malley Continue to Push to Raise Minimum Wage
- Trip Advisor: United States: Tipping & Etiquette
- Photo Credit Ingram Publishing/Ingram Publishing/Getty Images
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