Some insight on tip claiming from one of our staff:

At the end of my shift my first night waiting tables, I remember one of the other waitresses telling me to only claim my credit card tips.  What she was referring to was at the end of your shift, in order to check out of the system, you were required to claim the total amount of credit card tips you received during your shift.  By not claiming the cash tips, I learned that people could avoid paying income tax.

While watching another co-worker do her check out, I noticed she claimed double the amount she was required to claim.  I pointed out to her that what she was doing was contradictory to the advice I had previously been given. “No,” she replied, “I claim all of my tips so I can buy a house one day.” At 18 years old, this thought had never crossed my mind. All I was thinking of was the short term benefits of not claiming cash tips rather than how it could affect my future.

Another benefit of reporting all your tips is that it increases Social Security benefits. Basically, if you report all of your wages to Uncle Sam, you will be rewarded when you retire and file for Social Security. As a young person, it’s hard to change your mindset from “now” to long term, but there is an opportunity to see additional benefits – quite literally – when it’s time to retire.

Of course, most people don’t plan on being unemployed. That’s why the government has programs to help in emergencies. Tip claiming affects the amount you would receive if you ever needed to file for unemployment benefits. The less money you claim, the lower the amount you might be eligible to receive per week. The same goes for other government benefits programs, such as Workers’ Compensation and Social Security Disability.

While it may hurt the wallet a little more during tax season, the benefits of reporting all of your wages likely outweigh the drawbacks.  Additionally, while it may be a passed-down practice in the industry to not claim cash tips, it is technically taxable income, and is required to be reported.

You can call an employment law attorney at 919-244-2019 or click here to ask a question.