How Are Bussers Taxed on Tips?

This directly influences the percentage that guests choose to tip. For this reason, in many settings, a busser is considered a tipped employee and may make a tip wage supplemented by busser tips. As a restaurant owner/operator, it's vital to understand your tip tax obligations.

How Busser Tips Are Taxed

Servers, bartenders, and bussers usually earn most of their income from tips. People may leave tips using cash, card, check, and sometimes something of nominal or real value. All of these are taxable, so you must keep track of all tips, whether received by employees directly or distributed.

Popular Busser Tip Distribution Methods

• Honor System. The server decides how much the busser gets and can tip nothing. The server is incentivized to tip out well because, in theory, the server collects more tips when the "team" around them is on-point.
• Percentages. The restaurant designates a portion of tips that go to the busser.
• Tip Pool. In this system, all tips are turned in by servers, pooled by the establishment, and distributed to those who work based on a predefined formula.

It's important to understand these three systems because the IRS states that employees must report all tips, including non-cash ones. Depending on your tipping system, the information used to calculate taxes may come from the records you create, the employees reporting their tips and tips outs, or a mix.

Regardless of the system you choose, remember if the busser is making a tip wage, and combining tips with that wage doesn't equal the state's minimum wage, your establishment must make up the difference. State laws vary here, so be sure you look into those that apply to you.

Taxable Vs. Non-Taxable Tips

Regarding your role in reporting tips, busser tips are only considered "non-taxable" if that busperson received less than $20 in a month in tips. However, the busser must still report those when they file their taxes.

That said, you shouldn't tax employees on tips they didn't keep. Let's say your servers are on the honor system, so they tip out a percentage of their tips to the busser. That amount is not part of the server's tip income. It's part of the busser's income now, so they should pay any tip tax.

Good record-keeping is essential to a well-managed establishment. The tips that bussers report receiving and the amount servers report tipping out to those individuals should be equal.

Busser Tips Reporting Requirements

If employees receive tips directly from customers or by tip out, they must report tips to their employer for proper record-keeping and to meet employer tax obligations.

Tipped employees should complete and turn in Form 4070A on the 10th of each month following a month where they received tips. This form is a daily record that clearly outlines how tips are accepted and distributed to which team members. The IRS considers it proof of tip income, and you will use it to calculate payroll taxes as a percentage of the base wage plus reported tips.

The IRS considers this form voluntary. However, unless you manage all the tips, not requiring this form would make accurate record-keeping difficult—if not impossible.

Additionally, as the employer, you must complete the following, which can be filed electronically on the IRS website.

• W-2 to report individual wages (including tips) for each employee. These are sent out to employees and the IRS by Jan 31 for the previous year.
• W-3 to report wages and taxes for all employees. Submit to IRS by Jan 31.
• Form 940 to report unemployment taxes to IRS by Jan 31
• Form 8027 to report tips by type, service charges paid to employees, and gross food and beverage receipts. It should be postmarked by Feb 28 or transmitted electronically by Mar 31.

The IRS expects tipped employees to earn an average of 8% on customer orders. If tips are regularly less than this percentage, the IRS may find this suspicious and perform an audit.

Tax Implications for Bussers Who Do Not Meet Tax Obligations

While an employer must report busser tips so they can appropriately without payroll taxes, ultimately, the individual taxpayer—the busser—has tax obligations to fulfill. They should compare their records with the W2 they receive and report the difference when they file their taxes.

If the amount shown on their W2 is higher than their records, they should report the actual amount but must provide copies of the documentation with their tax return. However, this is more likely to happen with employees who tip out (servers) and those tipped to (bussers) if the employer keeps vital financial records.

If the busser doesn't report their tips, not only would they be required to pay their tip tax; they could be penalized up to 50% of the tax they we supposed to pay on top of it.

For this reason, it's vital for good employee relations that employers create an effective tip management and reporting system in which all tip employees can thrive.

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Exact Payroll has been partnering with the restaurant industry for years, providing reliable and accurate payroll services. As experts in managing the unique challenges faced by the restaurant industry, such as tip reporting and tax filing, Exact Payroll ensures that your employees are paid on time and in compliance with all applicable laws and regulations.

To learn more about our services, check out their online Restaurant Compliance guide, which provides valuable information on payroll-related topics. Don't let payroll be a headache for your restaurant – contact us today for a complementary consult.