UnderCover Waitress: Paying Tax On Somebody Else's Tips

Sunday, September 7, 2014

Paying Tax On Somebody Else's Tips

Ask the Waitress!

This is from the state of Virginia:
My wife is a waitress in family restaurant in VA. The manager gets paid a salary and also considers herself a waitress. She makes them split tips. I don't think this is fair because she gets paid a salary; which is a lot more than waitresses. Is this legal? 
Now the manager wants them to split tips but have to pay taxes on what it was before split. Is this legal? Ex. Friday night my wife's sales were $600 and the other two were around $250 (including so called manager). Before split my wife had over $120 in tips,  after split she had $75. Doesn't seem fair. 
Now the manager wants them to claim cash tips too besides credit/debit card. I know IRS wants 100%. My wife was claiming her credit/debit transactions and adding to it with her cash to get 15%. Can they make her claim what they want? Last week her pay check stub said she grossed over $300 and $235 in tips; she made $100 less. Something is going on here not sure what she should do. Advice would be greatly appreciated.
You bring up more than one problem; let's tackle them one at a time.

Virginia Tip Laws and Managers

Unfortunately, it looks like Viriginia is one of the states that does allow managers to take a chunk of waitress tips. At the Nolo Press web page about Virginia tip pools, it states:
According to the federal Department of Labor, only employees who regularly receive tips can be part of the pool. Employees must receive notice of the tip pool, as explained above. Employees can't be required to share their tips with employees who don't usually receive their own tips, like dishwashers or cooks. And no employers are allowed in the pool: Tips from a tip pool can't go to the employer or, in some states, managers or supervisors.
If the manager is waiting tables, she can say she is an employee who regularly receives tips. Plus, in Virginia if she is a manager but not the owner/employer then she can legally require you to include her in a valid tip pool. 

This is where what the manager can get away with stops. 

Claiming Tips and Tax Fraud

You are correct when you state the Internal Revenue Service (IRS) requires waitresses to claim all of their tips, both those given on credit/debit cards as well as cash tips. One hundred percent of your wife's tips are the tips she brings home as her pay. Nobody, NOBODY has to pay taxes on somebody else's take home pay. 

If your wife makes $200, but has to pay the manager/waitress, for example, $50 of those tips, then your wife is supposed to pay taxes on $150. Not a penny more or less. 

If this manager is requiring waitresse to give her their tips but pay taxes on the full amount ($200 in the above example) this is called "Tax Fraud." I recommend your wife contact the IRS. The IRS may be very interested in conducting an audit of this restaurant and this manager. How Do You Report Suspected Tax Fraud Activity?  on the IRS's website gives you the information you need. I suspect you will fill out form 3949-A, but you may call the toll-free number for any clarification you may need. 

Good luck. 


  1. I currently believe sloppy bookkeeping is all too common. Technically, if a waitress makes a tipped minimum wage, then her tips that bring her up to minimum wage are not included in the tip pool. In practice, all tips are included in the tip pool and how much people claim has more to do with trying to avoid an audit than simply claiming actual income.


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