[molly456]

I work as a server at a restaurant and make my living earning tips. Around 90% of our transactions are from credit/debit cards and the tips are charged on these cards. We use a point-of-sale system that automatically reports those tip amounts for us. Now here comes my issue, in the restaurant business we have to 'tipout' our support; such as, the bussers, food runners, and bartenders. At the particular restaurant I work in this accounts for around 28%-31% of the tips I receive. For example, if I receive $100 in tips then I end up tipping out around $30 to my support. The issue is most of the time it's tips received from credit/debit card payments and I automatically pay the taxes on the $100 even though I only received $70. I've been working here for one year and I have all of my end of shift checkout reports and I've paid taxes on around $9000 that I never received. What can I do to prove that the income reported on my W-2 is incorrect?

[ebaines]

You should submit form 4070 to your employer - it documents the amounts you have received and also tipped out to other employees, so that they can properly report those amounts to the IRS. See:
Tax Topics - Topic 761 Tips – Withholding and Reporting
And also Pub 1244:
http://www.irs.gov/pub/irs-pdf/p1244.pdf

I also advise you talk with your manager at the restaurant and see if he has any other suggestions.

[molly456]

My managers don't seem to care that I've paid taxes on income that I have never received. I was told "it all evens out in the end". However, that isn't true because over the past YEAR I have paid taxes on around $9000 of income that I didn't take home. When I brought it to the attention of my manager he got angry and said "work it out with your accountant". I said I should be able to submit form 4070 to declare the tips I actually received and the amounts I tipped out to other employees. I was told that wasn't the way they did it. Now I don't know what to do.

[AtlantaTaxExpert]

Molly:

The bottom line question is this: How much do you want to keep your job?

The reason for the question is simple: It seems that the ONLY way to get your managers to pay attention is to submit the Form 4070 and, when they kick it back, then report them to the IRS. When the IRS agent shows up to investigate the matter, THAT will get their attention, especially after they pay the huge fines that will be levied for their failure to follow the tax law.

Now, once that happens, they WILL look for AND find an excuse to fire you. Whether your state's Department of Labor will allow that to stand depends a lot on your specific state labor laws.

This may not be the tax advice you seek, but it IS something you need to consider.