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Both restaurant owners and servers have to navigate and comply with IRS tip reporting rules. While it used to be fairly easy to pocket tips—especially cash—without reporting them, the IRS has expanded its efforts to capture tip revenue by tightening down on tip reporting enforcement. Service industry employees are required to report and pay taxes on their tips. However, despite new tip reporting enforcement measures by the IRS, many service workers still receive a large portion of their tips in cash and choose not to report these earnings.

Restaurant owners and their employees have different tip reporting responsibilities. As a restaurant owner, you are responsible for withholding federal and state income tax from your employee’s wages as well as the Federal Insurance Contributions Act (FICA) tax. As a restaurant owner, it is important to be aware of your responsibilities in enforcing the tip reporting of your employees.

If your restaurant is struggling to navigate the complexities of tip reporting, it is best to consult with a skilled tax resolution lawyer. Outlined below are some of the tip reporting responsibilities of restaurant owners.


You Need to Receive a Tip Report from Your Employees

The IRS requires service industry employees to report their tips on a monthly basis. However, in order to accurately withhold the proper taxes and calculate the total wages of their employees, restaurant owners are required to receive a tip report from their employees for each payroll period.

To collect this information, you can have your tipped employees enter their total cash tips at the end of every shift in your point of sale (POS) system. If you don’t want to use your computer system to track trips, you can use IRS FORM 4070A.


You Need to Withhold Income and FICA Tax From Every Paycheck

Another important tax responsibility of service industry employers is withholding income and FICA tax from their employees’ paychecks. If you use a payroll service, you’ll need to report the total amount in tips for a given period along with your employees’ hours and hourly rate. When tax season comes around, you will need to calculate each employee’s total wages.

Restaurant owners are legally required to distribute IRS Form 4070 to their tipped workers or to have their employees report their tips through an acceptable alternative, such as a POS system. However, as a restaurant owner, it can be challenging to force your employees to report all of their tipped income. If for some reason the IRS decided to perform an audit on your restaurant, it could be a problem if all of the tips of your employees were not accurately reported.

If the IRS performs an audit on your restaurant, you will only be responsible for your share of the FICA taxes on unreported tips. While the odds are low that the IRS would be able to successfully substantiate unreported tip income and perform an audit, it’s still a risky move to create a lax tip reporting atmosphere in your restaurant. If an audit was performed and the IRS was able to account for unreported tip income, you could owe thousands of dollars in FICA taxes. Therefore, it’s always best to educate your employees on the importance of tip reporting and encourage them to accurately report their tip earnings.


You Must File IRS Form 8027 at the End of Each Year

IRS Form 8027 summarizes your restaurant’s total sales, credit card tips, and reported tips. If tipping is customary in your restaurant and you have more than 10 employees, you must submit an annual “Employers Annual Information Return of Tip Income and Allocated Tips.”


Consult a Skilled Tax Resolution Lawyer

If your restaurant is facing troubles with the IRS as a result of failing to report your tips properly, it is important to consult with a skilled tax resolution lawyer. At Morgan Sebastian Law, we’re eager to confront all the complexities of your tax issues. When you work with Attorney Becky Sebastian, you will experience compassionate attention that provides a sense of relief and peace of mind regarding your financial state.

To schedule a consultation with an experienced tax resolution lawyer, call (877) 223-6605 or fill out our online contact form.




Tips can be earned as cash provided by a customer, from a tip-sharing program at a restaurant, or as a gratuity left on a credit card. Many American workers rely on tips as a sizable portion of their income, yet many are unaware of how to properly report their tip earnings. Tip reporting laws can be a challenge to navigate. Usually, employees who receive gratuities from their customers must report their earnings to their employers on IRS Form 4070. If you are facing tax troubles as a result of failing to report your tips, you should consult with a skilled tax resolution lawyer. Outlined below is helpful information workers can use to navigate the tip reporting process.


The Difference Between Tips and Service Charges

Since tips are a form of income, they are taxable by the IRS. However, it is important to know what constitutes a tip, as some gratuities are classified by the IRS as “regular wages.” For example, one notable difference in gratuity classifications is that of tips and service charges.

Tips include the cash that customers leave for their service, any gratuity that is left on a credit or debit bill, and any money that is collected through a tip-sharing program. Conversely, service charges are fees that are added to a bill that the customer does not control, such as an automatic gratuity for large parties or a delivery fee.

The IRS classifies service fees as regular wages, which means that you’ll probably see the income from these fees on your paycheck rather than at the end of a shift.


Keep a Detailed Record of All Your Tips

If tips are a part of your wages, it is important to keep a detailed record of the tips you receive every day. This is especially important for employees who are a part of a tip-sharing program. For example, even if you collected $80 in tips as a server, you may have to allocate some of that money to a busser or hostess. If you have to share your tips with other employees, it is important to keep track of your net tip earnings.


Report Your Tips Every Month

The IRS requires workers who earn more than $20 in tips a month to report their tips on a monthly basis. Using IRS Form 4070, workers can report their earnings—if over $20—to their employers by the 10th of every month. For example, if you earned $600 in tips in March, you would need to report these earnings by the 10th of April.

It is important to note that you give this form to your employer, not the IRS. When you give the form to your employer, they will calculate the amount of payroll tax to withhold from your paycheck.


What Happens If I Choose Not to Report my Tips?

Many workers choose not to report their tips—especially cash ones. While cash tips don’t leave the same paper trail as the tips left on credit cards, choosing not to report them could still have long-term consequences. When you don’t report your tips in their entirety, the Social Security Administration can’t properly calculate your annual earnings, which can affect the size of your government benefits when you retire.


Consult a Skilled Tax Resolution Lawyer

If you are facing tax troubles as a result of failing to report your tips properly, it is important to consult with a skilled tax resolution lawyer. At Morgan Sebastian Law, we’re eager to confront all the complexities of your tax issues. When you work with Attorney Becky Sebastian, you will experience compassionate attention that provides a sense of relief and peace of mind regarding your financial state.

To schedule a consultation with an experienced tax resolution lawyer, call (877) 223-6605 or fill out our online contact form.




Tax refunds are a poorly understood aspect of tax season. Most people assume that when April comes around, they will get a nice check from the IRS. In fact, many American workers rely on their tax refund to pay essential bills. There are several reasons why you might not receive a tax return. Outlined below are some of the common factors that may disqualify you from getting a tax refund from the government.


You May Have Filed for an Extension

When submitting their taxes, some people choose to file for an extension. A tax extension allows taxpayers to delay filing their tax return while submitting an estimated payment. If you filed for an extension, you may end up waiting longer to receive a tax refund. When you are determining whether or not to file an extension for your taxes, it can be helpful to consult with a skilled tax resolution lawyer, who can provide advice specific to your situation.


The Withholding You Claimed on Your W-4 Was Correct

The government uses a withholding tax to tax at the source of income—usually the employer—in place of an income tax, which is taken after the wages have been earned. When you file a W-4, you will have to denote a withholding amount. Based on the information you provide your employer will withhold a certain amount of money from your paycheck and use it to pay the government directly. This withheld amount is a credit that taxpayers can use against the income taxes they have to pay during the year.

One of the most common reasons that people receive a refund check from the government is that they have withheld too much from their paycheck. Conversely, if you filed your withholding correctly, your refund is usually allocated into your paychecks over the course of the year. This means that instead of receiving a refund during tax season, you should notice that your paychecks get incrementally larger as the year goes on.


Your Tax Return Is in Process

One reason you might experience a delay in receiving your tax refund is because it is still processing. This is especially applicable to people who file a paper return. Also, if you filed your taxes close to the date they were due, it will take at least a month for the IRS to calculate whether you will receive a refund.


You Might Have Other Taxable Income

Many people have various sources of taxable income, such as IRAs and other investments. If any of your investments increased in value, it might offset your tax refund. Since the only income taxes withheld are from your employer, any income earned through investments might result in owed taxes that would offset a potential refund.


Consult a Skilled Tax Resolution Lawyer

The tax process is inherently complex, and as a result, many workers and businesses accrue tax debt. If you or someone you know is struggling with tax debt, you should consult with a skilled tax resolution lawyer. Without a tax lawyer, you may miss out on programs that could reduce your tax liability. At Morgan Sebastian Law, we’re eager to confront all the complexities of your tax issues. When you work with Attorney Becky Sebastian, you will experience compassionate attention that provides a sense of relief and peace of mind regarding your financial state.

To schedule a consultation with an experienced tax resolution lawyer, call (877) 223-6605 or fill out our online contact form.

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