How can the IRS tell if a server doesn't claim all of their tips?

Question

I serve part time at my job, and one of the first nights i spent serving, my manager told me I should always claim 100% of my tips or I could be audited. I do, but how would the IRS know if I didn't? Like, how does the IRS determine this?
On a side note, if you're a waitress/waiter do you always claim all of your tips? Why or why not, and if not, how much do you claim?

Answer 1

The IRS knows how much is typically claimed for tips by reviewing returns filed by other employees as well as field audits at your employer's place of business where they typically review the tip amounts on credit and debit transactions. If your income differs significantly from the norms that they have established, the odds of an audit increase astronomically. This is all parsed by computer so catching cheats is not all that difficult.



Once you've been caught cheating, that opens up every tax return that you ever filed for audit since there's no statute of limitations on tax evasion. A widely reported case back in the late 1960s in Boston resulted in collections of well into 5 figures from many waiters and over 6 figures for a maitre d' and a wine steward. The restaurant was hit for well over $1 million and nearly went bankrupt.

Answer 2

The IRS regularly does stings where they look for numbers that don't match up. The IRS can see what the total of your bills come to and then compare that against what you report for tips. If other waiters at a similar restaurant with similar bills report a lot more tips than you do, you can expect an investigation.



When I waited tables, I claimed all of my tips. I also kept excellent records. I didn't want the hassle of being investigated to save a couple of bucks in taxes.

Answer 3

Your manager is absolutely correct. You are required by law to report 100% of your tips. This ensures that the amounts are shown on the W-2.



To reduce any problems from allocated tips, keep records, daily, of how much you made.



As for how the IRS does an audit, do not try to play that game.



Besides the fraud, underreporting your income will hurt your credit score, ability to borrow money and even how much will collect in retirement.

Answer 4

IRS depends on 'norm's within the industry, ie. if the place you work has an income of X amount the assumed tips for the waitresses will be in relation to the extent of the business

ie. a high volume restaurant will generate more in tips than a little 'hole in the wall' family run diner

I knew of a case, many years ago--I did not prepare her return, who worked in a cafeteria--absolutely NO tips there, but IRS charged her 15% for tips anyway

not a good idea NOT to report tips

Answer 5

I heard there was like a minimum of a certain amount that you have to claim ??