November 23, 2004

•  Restaurants require tipped employees to report their actual tips to their employer at least once a month. An employer can require tip reports more frequently and then deduct payroll taxes from wages based on the amount reported, as required by the IRS.
• If the total amount of tips reported to the restaurant by all staff during a given pay period falls below 8% of the restaurant’s gross receipts, the restaurant is then required to allocate an estimated amount of tips to employees. The restaurant can choose to allocate tips based on hours worked or an individual tipped employee’s share of gross receipts.
• The employer cannot require an employee to falsify their income by declaring an amount of tips other than an actual amount that the employee has actually received. A restaurant cannot require tipped employees to report a fixed percent of their individual total sales as tips rather than reporting actual tips. An employer cannot require employees to falsify tax records.
•  If the restaurant allocates tips, that amount will appear on the employee’s W-2 and the employee will have to pay taxes on that amount unless they can prove actual tips with a daily log, samples of which are available from Young Workers United or on Form 1244 at http://www.irs.gov . An employee who has copies of their daily logs should only need to pay taxes on those amounts.
• The daily log and tip report should show exactly how much money the employee received in tips and exactly how much was tipped out to other workers. Tipped employees do not have to pay taxes on the amount tipped out to others - the other person does, however, and should report the amount received to their employer.
• Employees can submit a written request to review the employer’s calculations of allocated tips.
•  Except in unionized workplaces, employees can be fired or disciplined “at will” - i.e. for almost any reason - including under-reporting tips.