How to File Taxes as a Restaurant Waitress

Waitresses and waiters typically make most of their money from tips. Like the wages a restaurant pays its serving staff, your tips are also taxable. However, the majority of tips are often paid in cash directly to you when you wait tables in a restaurant. Because of this, you are required to adhere to special reporting and tax filing rules in order to ensure that you comply with IRS regulations.

Tips may be paid in the form of cash, add-ons to credit card purchases or from fellow workers in a tip-sharing system. Tips don’t include service charges like large party fees collected on your behalf by the restaurant. Service fees count as wages. The IRS says to report all tips to your employer in any month you get $20 or more using IRS Form 4070 or an equivalent reporting method. Any tips you don’t report to your employer have to be added to other income reported on your annual tax return.

Restaurant employers only have to pay servers $2.13 per hour, as of the time of publication, compared to the federal minimum wage of $7.25. The difference is called a “tip credit.” If you don’t make enough tips to bring your hourly wage up to minimum wage, your employer has to make up the difference. Your paycheck might not be enough to cover payroll taxes, as the amount employers pay is usually a small part of earnings. The IRS says payroll taxes not withheld from one paycheck must be deducted from the next. However, any payroll taxes that are not collected for a month by the 10th of the following month don’t have to be withheld from your pay. Uncollected taxes are listed in box 12 on your year-end W-2 statement, and you’ll have to pay them when you file your taxes.

When a waitress earns tips and doesn’t report them to her employer, she is responsible for claiming them on her tax return and adding them to her other income when calculating federal income tax. Uncollected Social Security and Medicare taxes are computed using IRS Form 4137. The amounts from the 4137 form are entered on the tax return and added to the total of taxes due.

IRS rules require restaurants to report tips for waitresses and waiters amounting to at least 8 percent of gross sales. When a waitress reports tips that total less than 8 percent of her sales, the employer must “allocate” the difference. The shortfall is listed in box 8 on her W-2 form. Employers don’t take any taxes out on allocated tips. The waitress must report the allocated tips on her tax return and pay the taxes or show that she didn’t make the allocated tip amount.