Small Business, Self-Employed, Other Business:
Form W–2, FICA, Medicare, Tips, Employee Benefits
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
As an employer, do I have any liability if my employees receive
tips but don't report them to me?
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. 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. 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.
If the reported tips from employees are more than 8% of sales, must
an employer still allocate tips to the employees?
No. Tip allocation is 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 nonallocable receipts, for the
given period. If the employees are reporting more than the 8%, there would
be no allocated tip amount. However, the employer must still file Form 8027 (PDF), Employer's Annual Information Return
of Tip Income and Allocated Tips.
When an employer provides day care assistance, should the employer's
contribution be reported in box 10 of Form W-2?
Yes. An employer reports dependent care assistance payments in box 10 on
Form W-2.
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