Small Business/Self-Employed/Other Business > Form W-2, FICA, Medicare, Tips, Employee Benefits

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Frequently Asked Tax Questions

Small Business/Self-Employed/Other Business - Form W-2, FICA, Medicare, Tips, Employee Benefits

Rev. date: 1/2009

As an employer, do I have any liability if my employees receive tips but don't report them to me?

Allocated Tips
Employee's Daily Record of Tips and Report to Employer
Employment Tax
Reporting Tip Income
Tips on Tips - A Guide to Tip Income Reporting for Employees Who Receive Tip Income
Tips on Tips - A Guide to Tip Income Reporting for Employees Who Receive Tip Income (Spanish version)
Tips/Allocated Tips

You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available.

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips.
If the employee does not report tips to you, it places you at risk of possible assessment of the employer’s share of the Social Security and Medicare taxes on the unreported tips.
If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Report the allocated amount on the employee's W-2 at the end of the year.

Beginning January 01, 2007, IRS is offering a three-year-pilot program, "The Attributed Tip Income Program (ATIP)," for food and beverage employers.

This reduces industry recordkeeping burdens, has simple enrollment requirements and promotes reporting tips on Federal Income tax returns.
This benefits both the employer and employee.
This information may be found in Revenue Procedure 2006-30.

Rev. date: 1/2009

If the reported tips from employees are more than 8% of sales, must an employer still allocate tips to the employees?

Allocated Tips
Employee's Daily Record of Tips and Report to Employer
Employment Tax
Reporting Tip Income
Tips/Allocated Tips

Tip allocation is only required when the amount of tips reported by employees of a large food or beverage establishment is less than 8% (or an approved lower rate) of the gross receipts (other than nonallocatable receipts) for the given period.
If the employees are reporting more than the 8%, there would be no allocated tip amount.
The employer must still file Form 8027 (PDF), Employer's Annual Information Return of Tip Income and Allocated Tips.

Rev. date: 1/2009

When an employer provides day care assistance, should the employer's contribution be reported in box 10 of Form W-2?

Dependent Care Benefits
Form W-2.
Wage and Tax Statement (Info Copy Only)

Yes. An employer reports dependent care assistance payments in box 10 on Form W-2.


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