TIPS ON TIPPING
TIPS ON TIPPING. Recently a colleague in Human Resources gave this information to me. I decided to pass it along as we come to the end of the 1st quarter of 2010. Internal Revenue Service (IRS) will conduct 6000 random EMPLOYMENT TAX AUDITS beginning February, 2010. The IRS is back! They are lifting their self-imposed moratorium on tip audits and will be auditing restaurants, taxi firms, car washes, and hair salons.
One challenge is to track and maintain employee tipping records for tax purposes.
Internal Revenue Code section 6053 details the reporting tips by both the employee and the employer. Internal Revenue Code section 6053(a) states that every employee, who in the course of their employment by an employer, receives in any calendar month tips which are wages, as defined in section 3121(a) or section 3401(a), or which are compensation as defined in section 3231(e), shall report all such tips.
The questions are:
How do I as an EMPLOYER, handle tips for income tax purposes?
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Tip Reporting Alternative Commitment (TRAC), or
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Tip Rate Determination Agreement (TDRA).
How does the EMPLOYEE benefit by reporting tips?
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Increased income may improve financial approval when applying for mortgage, car, and other loans
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Increased social security and Medicare benefits (the more you pay, the greater the benefits)
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Increased unemployment compensation benefits
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Increased employee pension, annuity, or 401(k) participation (if applicable)
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Increased workers' compensation benefits, should you get hurt on the job
How does the EMPLOYER benefit by reporting tips?
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Tips are income, the IRS will expect you to be paying taxes, if not, penalties will be administered.
Need help? Contact your Human Resource and Payroll departments. Contact Pinnacle PEOfor more information on Tips on Tipping.
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