Restaurant Tip Reporting

Nick Swedberg

Few industries can rival restaurants for the crown of “Most Specialized and Complex Tax Regulations”.  Restaurants have the unfortunate “honor” of their own code in income, payroll and sales tax.  A restaurant owner not fluent in these idiosyncrasies can find themselves in a costly predicament.

Let’s briefly discuss Tip Reporting.  If you talk to any restaurant owner, server, dishwasher or chef, the amount of incorrect information related to tip reporting is staggering.  Some say just report 8% of your allocated sales while some simply report the amount they received on credit cards.  The IRS has their own way and it basically boils down to this: Report whatever you take home.  Reporting all your credit card tips could be too high if you tip out like any good server does and all of your tips are received via credit card.  As the employer, don’t pick a number for the employee – make sure they tell you what to report.  As an employee, report what you received less any tip-outs.

The IRS knows what the average tip percentage is for your type of restaurant and they aren’t scared to blindly allocate that to you and force YOU to prove THEM wrong.  You don’t want to find yourself in that place!


If you have any questions about tip reporting, please contact me:


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