Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Employees' 'Tip Income' and the IRS

By G.J. Stillson MacDonnell and William Hays Weissman
February 27, 2007

Employers that have a lot of tipped employees often face a host of employment law challenges, including payroll. Under the Internal Revenue Code ('Code'), tips are income subject to income tax withholding and usually subject to Social Security and Medicare taxes as well. Problems often arise when the employer does not know exactly how much tip income an employee receives, either because they are in cash, or because the employees, such as hosts or busers, are indirectly tipped by other employees, such as waiters.

To help employers with these issues, the Internal Revenue Service (IRS) has developed several programs designed to reduce the potential negative tax consequences of employee under-reporting or misreporting of tip income. While these programs do not alter the legal requirements regarding the taxation of tip income, they are designed to help reduce compliance burdens and opportunities for error. The IRS also announced a new program, which began on Jan. 1, 2007.

This article offers employers a short guide for dealing with the federal taxation of tipped employees and the IRS' compliance programs.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

Legal Possession: What Does It Mean? Image

Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.

The Anti-Assignment Override Provisions Image

UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?