Keeping track of the tips earned by bartenders isn't just a good idea – it's a mandatory activity, according to the IRS. One of the best ways to keep an accurate accounting of income via tips is with a daily tip journal. In addition to recording tips for personal income tax, a bartender is required to report tip income accurately to his employer. Only cash, debit or credit card tips need to be reported to the employer, barring a conflicting internal policy. Tips in the form of tangible goods, such as event tickets or other valuable items, still need to be recorded and reported to the IRS as part of income tax.
Using the pen and ruler, draw a ledger table in the tip journal with the following column headings: “Date of Tips Recorded, Date of Entry, Tips Received Directly From Customers and Other Staff, and Credit and Debit Tips Received,” according to the IRS' 4070A form.
Draw two additional ledger table columns in the tip journal with a pen and ruler, entitled: “Tips, Payout to Other Employees, and Names of Employees to Whom I Paid Tips.”
Ask the employer how often they want income reported to them. Monthly is a common reporting interval. Make note of the reporting interval and whether the employer requests that it be changed in the journal.
Calculate the sub-total of each column in the reporting interval by adding each entry to the following entry using a calculator. Write the sum at the bottom of each column.
Draft an employee record of tips to the employer with the following fields: “Employee's Name and Address, Employer's Name and Address (including establishment name), and Tip Reporting Period (including month, numeric date and year, and the reporting employee's signature).” The report also needs to include the reporting employee's “social security number, cash tips received, credit and debit card tips received, tips paid out, net tips, and the date,” according to the IRS.
Tips
The IRS advises that tip recipients omit any mandatory service charges employers add to a customer's bill that they then pay the worker as part of wages rather than a tip.
Warnings
Double check all tip counts and journal entries for accuracy, since the penalty for inaccurate tip reporting to the IRS is “50 percent of Social Security and Medicare taxes owed on the unreported tips.”
References
- IRS.gov: Reporting Tip Income
- The International Guild of Hospitality and Restaurant Managers: Tip-Reporting Basics
- Cobb CPA PC: Tax Tips About Tip Income
- Bankrate.com; “Don't Forget – Tips Are Taxable Income”; Kay Bell
- Internal Revenue Service. "Publication 1244: Employee’s Daily Record of Tips and Report to Employer," Pages 1-4. Accessed Feb. 14, 2020.
- Internal Revenue Service. "About Publication 1244, Employee's Daily Record of Tips and Report to Employer." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Publication 531 (2019), Reporting Tip Income." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Form 1040: U.S. Individual Income Tax Return," Page 1. Accessed Feb. 14, 2020.
- Internal Revenue Service. "About Form 4137, Social Security and Medicare Tax On Unreported Tip Income." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Form 4070A," Pages 1-4. Accessed Jan. 28, 2020.
Tips
- The IRS advises that tip recipients omit any mandatory service charges employers add to a customer's bill that they then pay the worker as part of wages rather than a tip.
Warnings
- Double check all tip counts and journal entries for accuracy, since the penalty for inaccurate tip reporting to the IRS is “50 percent of Social Security and Medicare taxes owed on the unreported tips.”
Writer Bio
Daniel R. Mueller is a Canadian who has been writing professionally since 2003. Mueller's writing draws on his extensive experience in the private security field. He also has a professional background in the information-technology industry as a support technician. Much of Mueller's writing has focused on the subjects of business and economics.