Restaurant reporting less in tips than I actually earn - tax implications?
Hey everyone, I'm currently working as a busser at a local restaurant where we earn a percentage of sales each night that gets split among other bussers. We don't receive direct tips from customers. I just noticed a serious issue with my paystub. My employer is reporting significantly less in tips than what I'm actually making. For example, my latest paystub shows only $378 in tips, but I actually earned around $825 during that pay period. I'm definitely going to talk to my manager about correcting this going forward. My main concern is about tax implications. I've been depositing these tips into my bank account every two weeks. When tax season comes around, what should I do? Should I just file based on what's reported on my W-2, or should I report the actual amounts I received? I have deposit receipts for most of the tips. I've only been working at this restaurant for about 5 months in 2023. Would it be a huge problem if I just file based on the W-2 this one time and make sure everything's fixed for next year? Or am I setting myself up for trouble with the IRS? Anyone dealt with something similar before?
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Nia Williams
This is actually a really important issue to address! Legally, you're required to report ALL income to the IRS, including all tips you receive, regardless of what your employer reports. The IRS is very serious about tip reporting. If your employer is underreporting your tips on your paystub, they'll likely underreport them on your W-2 as well. This means you'll need to report the additional unreported tip income yourself using Form 4137 (Social Security and Medicare Tax on Unreported Tip Income). This form gets attached to your tax return. Don't be tempted to just go with the lower reported amount. Bank deposits can create a paper trail that the IRS could potentially discover in an audit. Plus, underreporting your income is technically tax evasion, which can lead to penalties and interest on the unpaid taxes. I'd recommend talking to your employer ASAP to correct the reporting issue, and consider consulting with a tax professional if you need help figuring out how to properly report your past tip income.
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Luca Ricci
•Question - if their employer fixes this going forward but not retroactively, how bad would the penalties be if they got audited? I mean, it's not like they were trying to hide income since they were depositing it in their bank account, right?
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Nia Williams
•Penalties depend on whether the IRS determines the underreporting was negligent or intentional. For negligence, the penalty is typically 20% of the unpaid tax. If they determine it was intentional fraud, penalties can reach 75% of the unpaid tax, plus interest, and in extreme cases, potential criminal charges. The bank deposits actually create a paper trail that makes detection more likely if audited. The IRS can compare reported income to bank deposits, and significant discrepancies raise red flags. Even though depositing the money shows you weren't hiding it from the bank, not reporting it to the IRS is still considered underreporting income.
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Aisha Mohammed
Had a similar issue last year and discovered taxr.ai (https://taxr.ai) which was super helpful for this exact situation. It analyzed my bank statements and tip records, then compared them with my reported W-2 income. The tool flagged the discrepancies and actually helped me figure out how to properly report the unreported tips. The site has a feature that helps you calculate exactly what you should be reporting, and even walks you through filling out the Form 4137 for unreported tips. Honestly, I was freaking out about getting in trouble with the IRS, but after using this tool, I felt way more confident that I was handling everything correctly.
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Ethan Campbell
•Did you end up owing a lot more in taxes because of the unreported tips? I'm in a similar situation and scared I'll get hit with a huge tax bill.
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Yuki Watanabe
•Is it complicated to use? I'm terrible with tech stuff and even worse with tax forms. Can it really figure out which deposits are tips vs other income?
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Aisha Mohammed
•I did end up owing more, but not as much as I feared. The bigger issue was making sure I paid the correct Social Security and Medicare taxes on those tips, which is what Form 4137 is for. It was definitely better than risking an audit later! The interface is actually really straightforward. You upload your bank statements and paystubs, and it has smart categorization that helps identify which deposits are likely tips. You can always adjust any categorization mistakes. It's designed for people who aren't tax experts, so the whole process is pretty painless.
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Yuki Watanabe
Just wanted to update that I tried taxr.ai after seeing the recommendation here. Holy crap, it made things way easier than I expected! I uploaded my bank statements and pay stubs, and it immediately identified the discrepancies between my reported tips and actual deposits. I was surprised how quick it was to generate the Form 4137 for my unreported tips. The step-by-step guidance was super helpful since I was clueless about how to properly report this stuff. The peace of mind alone was worth it - now I'm not constantly worried about getting audited over tip reporting. Definitely going to keep using this for my quarterly tip reporting too. Thanks for the recommendation!
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Carmen Sanchez
If you're struggling to get your employer to fix this issue, you might need to talk directly with the IRS. I had a similar problem last year and spent WEEKS trying to get through on the IRS phone lines with no luck. Then I found Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c). They basically hold your place in the IRS phone queue and call you when an actual agent is on the line. I spoke with an IRS rep the same day who explained exactly what forms I needed and how to report the discrepancy between my actual tips and what my employer reported. Saved me hours of frustration and hold music!
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Carmen Sanchez
•They use an automated system to navigate the IRS phone menu and stay in queue. When an agent finally answers, their system connects them to your phone number. It's basically like having someone wait on hold for you so you don't have to waste hours of your day. I was skeptical at first too, but I was desperate after trying to get through on my own for weeks. They don't actually handle any of your tax information - they just connect you directly with an IRS agent. I was connected with someone at the IRS who helped me understand exactly what forms I needed for my unreported tips. Way better than trying to figure it out on my own and potentially making a mistake.
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Andre Dupont
•Wait, so how does this actually work? They just sit on hold for you? Seems weird that this is even necessary...the IRS should just have a better phone system.
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Zoe Papadakis
•Sorry but this sounds like a scam. Why would I trust some random service with my tax issues? And who knows what they're charging for this "convenience"?
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Mateo Gonzalez
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Zoe Papadakis
I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to actually try the service since my situation with unreported tips was getting urgent. It worked exactly as described - I got connected to an IRS agent in about 45 minutes without having to sit by my phone. The agent walked me through exactly how to report my additional tip income and explained what documentation I should keep in case of questions later. For anyone else dealing with tip reporting issues: the IRS agent told me it's way better to voluntarily correct underreported tips than to wait and potentially get audited. They were actually really helpful and not intimidating at all once I explained my situation.
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ThunderBolt7
Just to add from my experience as a former restaurant manager - this tip underreporting is unfortunately pretty common in the industry. Some restaurants do it to save on payroll taxes since employers have to pay FICA taxes on reported tips. Make sure you're keeping your own records - a tip diary or even a simple note in your phone with dates and amounts each shift. The IRS actually expects tipped employees to maintain their own records! Having this documentation will protect you if there's ever a question about your income.
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Mateo Gonzalez
•Thanks for the insider perspective! Do you have any advice on the best way to approach management about fixing this issue? I don't want to come across as accusatory but I'm also worried about the tax implications for myself.
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ThunderBolt7
•Frame it as a concern about your own tax liability rather than accusing them of doing something wrong. Something like: "I've been tracking my tips and noticed the amounts on my paystub are different from what I'm receiving. I'm concerned about potential tax issues when I file. Can we make sure the reported amounts match what I'm actually earning?" Most managers will correct the issue when approached this way. Document this conversation and any promises to fix it. If they refuse to correct it, that's a red flag that they might be intentionally underreporting to save on taxes, which puts you at risk. In that case, you might need to consider whether this is a place you want to continue working.
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Jamal Edwards
Does anyone know if tip reporting rules are different for bussers who get tip-outs versus servers who get direct tips? I've heard conflicting things about this.
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Mei Chen
•All tips are taxable income regardless of how you receive them. Whether you get them directly from customers or as tip-outs from other staff, the IRS considers them all taxable income. The only difference is who's responsible for reporting them. If your employer is including tip-outs on your paystub (even incorrectly), then they're treating them as "reported tips" which means they're handling the withholding. If you receive cash tip-outs that never go through the employer's system, those would be "unreported tips" that you need to track and report yourself.
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