Has the habit of tipping become so powerful that tip income should not be taxed?

Brookswood

Brookswood

Senior Member
I don’t get it.
Has tipping become so special that it is now bad form to be taxes as income?

Two people earn $50,000 a year. One as wages working in a warehouse. The as direct wages of $30,000 a year and the other as $20,000 a year as tips from customers. Why should the restaurant worker legally avoid income tax on that part of her income while the warehouse guy pays income tax on all his earnings. I don’t get it.
 

Here in Canada all income is taxed, BUT most people have deductions that legally reduce their taxable income level. Jobs that have traditionally received cash tips, such as taxi drivers, barbers and hair stylists, bar tenders and servers, are expected to declare tips to Revenue Canada as income.

Here in the Province of Ontario, tips given to employees are NOT shared with owners or managers, by law. The Ontario minimum wage hourly rate has just been increased, again, to $17.70 an hour. That rate is increased every year, to match the Cost Of Living statistics in Canada.

So in Ontario, wait staff get at least $17.70 an hour plus tips, and at the end of the year their employer will issue them a T 4 income tax form that shows their yearly income, their tax deducted, their contributions to the Canada Pension Plan, and their contributions to the Employment Insurance Fund. Individuals can claim a number of legal tax deductions, depending on their specific situation.

I know that Revenue Canada does randomized spot checks on certain employment groups. A long time ago, in the 1980's I owned a taxi plate in a town just outside of Toronto. I drove my taxi one week out of every month ( I had a full time job that allowed me to do that ) and I rented the cab out to another driver for the other 3 weeks of the month. I declared all of the income from the taxi business, every year, and I was audited 2 years out of the 5 years that I owned it. That was typical of that industry, which sees cash tips daily.

JIMB.
 
I tip around 20%, but it is a custom that makes little sense. Are bank tellers, super market checkers, or the guys who paint your house tipped? Probably not. Dined out last night and the check included several suggested tip amounts based on percentages ranging from 10 to 20 percent. My 20% is a significant portion of the waiter’s wage so why not tax it, or better yet include it in the price of a meal and eliminate tipping? Of course this is a useless discussion, ain’t going to happen.
 
Pepper said:
My concern re: not taxing tips is that this is a loophole for the very wealthy to declare year end bonuses as tips and thus avoid paying tax on millions of dollars.
Click to expand...
It seems like I remember reading sometime in the past that some restaurants were demanding part of their waiters tips. Now if that's true, who is going to benefit from this tax exemption? I'm sensing an unintended loophole here. I believe that restaurant employees depend on their tips. Restaurants are now including space for tips right on the receipt slips, and suggested tip calculations to boot that are often above 15%. I'm not against tipping and am happy to do it, but much of this sounds like an employer asking patrons to pay their employees instead of them paying their employees. Something smells fishy to me.
 
I wouldn't worry too much. Both the corporate duopolist and populist candidates are currently promoting this, and most likely neither will be allowed to deliver on it.

Though you can find a lot of wacky theories behind tipping, it became commonplace in lower-tier service jobs as a way to winnow out poor employees. This was necessary because of the high level of turnover and short duration of such jobs. Waiting tables was never meant to be a lifetime career, support a family, etc.

Don't show up for work? No tips, though people could fake hours for their hourly wage. Bad service? No tips. Attitude discouraging repeat business? No tips.
 
dilettante said:
Waiting tables was never meant to be a lifetime career, support a family, etc.
Click to expand...
I've known professional wait people since childhood who raised families and bought homes. You might be thinking of McDonald's, but, what was never meant, IS, whether you agree or not. The value of working at a job should not be demeaned. A job is a job and there should be respect for it.
 
Tips were always taxed, but who says anyone got tip money. There was no way to prove, who got a dime in tips-there was no paper trail. So, tips were vastly under reported as income. Until credit cards, where the tip left a paper trail. Legislators eager for a buck enacted laws designed to grab that unreported income. For a lot of people, the tax meant a huge drop in income.
If I were Emperor of the Universe, I'd ban tipping. It's demeaning to have to live on the generosity of others. You are providing a service, and you should be paid accordingly. Every time tipping comes up, I think of my ex-Sister-in-law, who never left a tip because of "bad service".
 
Last edited:
Pepper said:
The value of working at a job should not be demeaned. A job is a job and there should be respect for it.
Click to expand...

It isn't about respect for doing a crappy job at unskilled labor, it's about market value.

Otherwise why not sit home slacking at one of those "stuffing envelopes" jobs and be guaranteed the income of a lawyer, college professor, or NGO director?
 
Pepper said:
I've known professional wait people since childhood who raised families and bought homes. You might be thinking of McDonald's, but, what was never meant, IS, whether you agree or not. The value of working at a job should not be demeaned. A job is a job and there should be respect for it.
Click to expand...
I agree. I know people like that also... professionals who raised a family and bought homes.
 
Some states have a lower min wage for tipped staff.

As of late in 2023...

Minimum wage in Calif is $16/hr across the board. Tipped employees enter the nearest estimate of their total tips for the entire year on their tipped-employee tax form. This amount can't be audited, proven, or dis-proven, so tipped employees are basically on an honor system.

The annual tip amount entered on that form is taxed at a lower rate than the worker's annual earned amount.

Some Calif restaurants hold all wait staff tips until the end of each shift, and distribute the total among that shift's wait staff, hosts, and support staff such as cooks, dishwashers, veggie-choppers, etc. It varies slightly, but usually about 80% is distributed equally among the wait staff and hosts, and 20% is divvied up to the support staff.

That shift tip total includes tips recorded on customer receipts, and some restaurants (but not all) also *require* wait staff to put their cash tips into a jar (or drawer or lock-box) so that it can be divvied up as well. Obviously, some wait staff don't put all their tips in the pot, but whatever...nobody gripes about that.

Most restaurants give a quarterly or semi-annual bonus to support staff instead of giving them a cut of the wait staff's tips, whether the tips are recorded or not.

My DIL waited tables at a few different Calif restaurants for a couple decades. Her tips were usually $150 to $300 per shift, depending on whether it was a Tuesday evening, a Sunday morning, or a Friday night. She worked full-time, so that averages out to about $1,000 in tips for a 5-shift week.

So, she kept track of how many shifts she worked the year she was filing for. If she worked 40 shifts that year, she entered $40K for the total tips amount on her tipped-worker tax form.
 
Tips should be reported to maximize fica withholding and taxed where appropriate.

I’ve known many people that have chosen to underreport tips when they were young and come to regret it when they got old.
 
Tips have been a tax issue for decades ..... with most in the early years under reporting etc .... standard when i did that type of work was around 50% most back then was cash.

Then came IRS who tried a method of seeing how many tables a server was connected to and averaging a tip .... was not accurate as if someone never left a tip you would pay on phantom money or if you were tipped better then the formulas assumption about tip.... same as the under reporting done for decades...

As tips became more and more on the credit/ debit cards was paper trail to IRS to find tips. it was left to restaurant to reconcile and then pay the tip to server but heard all sorts of things from pooling tips left on CC receipts and dividing to all staff to restaurant taking a cut etc.... this was unfair IMO to the primary server who did the work. who is the tax assigned to the server of record?

We speak of restaurant service but many other places get tips and many may not have ever reported.... So the whole system as long as cash is most likely not worth the IRS time and effort to find all tips to tax on....

Go to taking out all the loopholes and workarounds credits for buying this or that and they keep adding more Tax credits to buy something.
So many so worried about " fair share" and who is paying enough or should pay more ....

The system creates issues as the Percentage rate means nothing IF they work the system and yes it is legal just takes a accountant and lots of paperwork.... Politicians will tell you we are raising the % on high earners but their well paid tax accountants know better then anyone how to work the system and since the high earners are also politician support money wise ..... those Same politicians know that group will never pay the % so looks good to the masses and wink wink just more account work... may be it is an accountant lobby who likes more hoops to jump through so more people have to hire help for taxes.

OVERHAUL it all flat tax one standard deduction and no pages and pages of workaround and loopholes.
Let the market decide if people want to buy things instead of tax credits etc.
 
My x-wife worked as a house cleaner. She preferred cash, but some customers paid with a check. She would take the check to the bank and cash it. She never paid tax on that. She was a single mother, with 2 kids 11-6 years old. House cleaning is a different service than waiting tables. I don't like that they have to have a nice smile and act nice every minute of their shifts. They should get paid a living wage for their work.
 
There are reason for and against. Many who rely on tipping don't get the benefits an hourly or salaried employee might including social security or retirement plan contributions. And they wind up paying out of pocket for medical care or insurance. Right or wrong many business assume or take into account tipping is part of their employees pay.

But many benefit from untaxed cash. The base pay might be $3 an hour but they're averaging 20 in tips. But a bad night or week in a tip related business means a small pay check for that week. I know people who work for commission or tips who would rather have steady pay and others who wouldn't want it any other way because they know what they are doing/how to play the game.

I know bar flys who brag they never pay for a drink because they tip so well. They leave $15 when the total tab should've been closer $30-40. The big tippers are telling the employees they expect a little more or the employee knowing they must go the extra mile do it without being told.
 
Manatee said:
It is income, why should it not be taxed?
Click to expand...
Are gratuities earned income? Unlike earned income, tips are optional and unreliable, and have no mandatory minimum or maximum. They aren't given to you by the establishment you work for, and aren't included on your employee contract or your employer's financial records and ledgers.

All those things are how the IRS defines earned income, which is why they struggle with it, or why it's controversial. And it might be why some restaurants used to require their wait staff to write the total of their tips on their time-card at the end of their shift. That was a thing for a while, but I suppose it had no impact on a restaurant's bookkeeping, so it went away.
 
Nathan said:
I always give cash tips so the boss doesn't steal them. I don't care if the working poor don't pay taxes on their tips, it's the rich that dodge paying their fare share that I'd be concerned with.
Click to expand...
Here in the Province of Ontario, that practice is illegal under The Ontario Labor Act. Employers or managers are not allowed to have any of what an employee receives as tips, all be it in cash or on a credit or debit card. JIMB.
 

You must log in or register to reply here.

Back
Top