just saw something about this, and I imagine it has been covered on SDMB, but a search doesn’t pick it up…
There is a small, growing movement, to mark the contribution to the waitstaff credit card slips at restaurants as being ‘GIFT – not a TIP’. Gifts, of course, are not taxable, tips are. Most waitstaff pocket cash tips and usually don’t claim them fully on their state or federal tax returns, anyway, but, what the heck, would some documentation of ‘gifts’ offset taxes? god knows they make too little already.
I suppose this might work for cash tips, but how could it work on a credit card? The restaurant processing the credit card has a place to enter a tip amount, but no place to enter a gift amount. Either they enter it as a tip (which is then taxable), or they don’t enter it at all.
Even for cash, the government tends to take a dim view of supposed loopholes which would make something nontaxable. Unless you can demonstrate that you’d be giving this gift to this person even if they weren’t waiting your table, they’re still going to call it a tip.
“would some documentation of ‘gifts’ offset taxes”
If I understand what is going on, the idea is not “offset” taxes, but to avoid them altogether. Most likely, a court would rule that such a “gift” was still renumeration for work, and is therefore taxable. If the tip/gift is given in cash, then there is no way for the IRS to track that, but there is also this (from the IRS web site on tips):
So, your employer has some motivation to make sure you don’t under-report tips by too much.
You see a story almost every day about some benefactor who leaves a huge ‘tip’ for a struggling waitress, sometimes hundreds or a thousand bucks. Surely, that sort of thing has to be called a ‘gift’, right?
Frankly, too, many of us frequent the same restaurants and know many of the wait staff, their family ties, their medical issues, even. Why wouldn’t we want to ‘gift’ a bit of money to help out? Not for service, but for friendship?
Emphasis added. That’s a question more suited to another forum since there is no factual answer, but as far as actually gifting them, I suspect if you want to “gift” them something, you should do so outside the business premises and NOT during working hours.
Legal or no, I can assure you that very few tipped employees claim cash tips on their taxes.
One anecdote, take it for what it’s worth: When I worked at Pizza Hut, back when it was a sit-down restaurant and didn’t take credit cards, our boss told the wait staff to claim only the tips it took to get them up to minimum wage (because the employer is on the hook for that if the tips don’t cover it). Then pocket the rest. There was even a handy feature on the computer that would calculate that for you. So everyone would claim ~$3/hour in tips (because minimum wage was $5.15 and waiter wage was $2.39). Everything above that was under the table.
I only worked that one job, but I’ve known and spoken to a lot of tipped employees over the years and they tell me it works the same in every job they had. Credit and debit cards have put quite a damper on that, sure, but it still works that way for cash tips. So if you want your server to avoid taxes, tip in cash. I’ve yet to hear of the IRS cracking down on this or auditing minimum wage earners.
And that covers the philanthropist’s thousand-dollar “tip”, too. Give the server $5, and that’s about the worth of the consideration of waiting the table, and so is not a gift. Give the server $1000, and you’re not receiving anything near that in return, and so that is a gift.
Can you not claim that the price of the meal includes all such consideration, and anything on top of that is clearly a gift?
Suppose tipping didn’t exist until today, I’m almost certain that it would be interpreted that way. The price on the menu is what you pay “in full consideration” of the meal you will be served in return, anything you pay above that previously agreed upon market price is a gift.
Is a tip only considered “in return for something” because we’ve been doing it that way for a while? Or, more cynically, because it is a significant portion of a server’s income?
As for the OP: the IRS doesn’t care about what you call a thing. They care about what the thing actually is. You’d be surprised how diligent they are at figuring out that something is really “income”. Spent a lot of the first few sessions of my tax law class discussing that. My professor had some pretty hilarious examples.
Heh, trying to duplicate this; I misspelled conscience and it corrected to conscious. Although if the waitperson is conscious, they will most likely pocket the cash.
Even credit cards haven’t put a damper on it for some employees. When you enter a card transaction, there’s a place for the employee number. But in restaurants where the person entering the transaction may not be the person getting the tip, they usually just have a single employee number that everyone uses. So there’s no way to track credit card tips to employees.
This discussion reminds me of the politician who claimed that he was not given any gifts by lobbyists. Instead, lobbyists would just loan him things for undefined periods of time, and he would just keep those things in his home. But no, they were not gifts. :rolleyes:
The one place I have personal experience in was a pizza place. For deliveries, anyone in the store might take a phone order and run the card transaction. The credit card slips were stapled to the ticket. The drivers took the slips to the customers for signature and the customer could then add a tip. At the end of the shift, the driver would turn in the slips along with his cash and would get back any tips. For the front counter, the teller would wait for a slow period and go through the slips in the till. They’d take the tip money from the till and initial the slip to show the tip had been taken (so no one else takes that tip, too.)
Yes, everyone was supposed to report any tips when clocking out of their shift, but generally no one did.
This is not correct. There is a specific IRS ‘gift tax’ that is owed on gifts.
Of course, it doesn’t matter in most cases. It only applies for gifts larger than $14,000*, and it is the responsibility of the giver to pay it.
Often much larger. If the gift is from a married couple, like your parents or grandparents, they can give you up to $28,000 with no tax liability. And they could give to you & your spouse jointly up to $56,000. So most people asre never affected by gift tax.
