Tax Workshop 6 - Tip Income   

1. You can declare as tip income only a certain percentage of your total sales.

True False

2. Sometimes you don't receive tips directly from customers, however, you receive them from other employees. If that is the case, you don't need to declare those tips.

True False

3. Susan is a waitress and she earned $15,000 in wages, not including any tips she received in 2008. She received tips of $17 in March, which she did not report to her employer. Because she became ill in February and did not return to work until late March, she also forgot to report the $58 tips that she received in February. She did report the $7,000 she received as tips for the rest of the year. How much income must Susan report as wages, tips and other compensation for tax year 2008?

A. $22,185.
B. $22,075.
C. $15,260.   
D. $15,183.

4. You must report tips to your employer so that:

A. Your employer can withhold federal income tax and social security and Medicare taxes or railroad retirement tax.
B. Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board.
C. You can avoid the penalty for not reporting tips to your employer. 
D. All of the above.

5. If your employment ends during the month, you must report your tips by the 10th of the next month.

True False

6. If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report to your employer any portion of the tips you receive that you pass on to other employees.

True False

7. Allocated tips are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. Your employer will do this if:

A. You worked in a restaurant, cocktail lounge, or similar business that must allocate tips to employees.
B. The tips your reported to your employer were less than your share of 8% of food and drink sales.
C. You did not participate in your employer's Attributed Tip Income Program (ATIP).
D. All of the above.

8. Greg Green began working at the Golden Restaurant (his only employer in 2008) on June 30 and received $10,000 in wages during the year. Greg kept a daily tip record showing that his tips for June were $19 and his tips for the rest of the year totaled $8,000. He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. Greg's W-2 from Golden Restaurant shows $18,000 ($10,000 wages plus $8,000 reported tips) in Box 1. How much must Greg report as wages on his tax return?

A. $17,018.
B. $10,000.
C. $18,019. 
D. $8,000.

9. If you kept a daily tip record and reported tips to your employer as required, add the following tip to the amount in box 1 of your Form W-2.

A. Cash and charge tips you received that totaled less than $20 for any month.
B. The value of noncash tips, such as tickets, passes, or other items of value.
C. The total of your tips you received for the year.
D. Both A and B above.

10. Your tip record is incomplete, but it shows that your actual tips were more than the tips you reported to your employer plus allocated tips, then you must report allocated tips on your tax return.

True False

11. You should keep a daily log of your tips so that in case of an examination, you can substantiate the actual amount of tips received even if you report all your tips to your employer. You should keep records because

A. Your return could be randomly selected for a federal income tax examination.
B. A tip examiner could review your employer's books and records and the examination could reveal unreported tip income that you may later need to verify.
C. An Internal Revenue Service Center may run a match of your income information from your Form 1040, with the income information from your Form W-2. If the figures do not match, you could receive a notice about the discrepancy and a possible examination of your tax return. 
D. Any of the above reasons.

12. When you do not report your tips to your employer, it places your employer at risk of possible assessment of the employer's share of social security and Medicare taxes. If you do not report your tip income to your employer, but you do record the tip income on your federal income tax return,

A. You have satisfied the proper reporting requirement.
B. You may owe a 50% social security and Medicare tax penalty and be subject to a negligence penalty and possibly an estimated tax penalty.
C. You may owe a 10% late filing penalty because you are supposed to pay as you go. 
D. None of the above.

13. If you report all your tips and your taxes on your tips are greater than your pay from your employer,

A. You can either pay the tax when you file your federal income tax return or you can reach into your tip money and give some to your employer to be applied to those under-withheld taxes.
B. You could be subject to additional federal income tax, social security and Medicare taxes, and maybe state income tax.
C. You could be subject to a penalty of 50% of the additional social security and Medicare taxes, and a negligence penalty of 20% of the additional income tax, plus interest. 
D. All of the above.

14. All of the following are correct statements regarding tip income, except:

A. Individual that receive tip income include airport skycaps, bartenders, hair stylists, bellhops, casino workers, delivery service people, golf caddies, hotel housekeepers and taxi drivers.
B. Anyone who receives tip income is required by law to report the tip income to his or her employer.
C. Auto repair specialists and mechanics are not a tip reporting industry and therefore they are not required to report their tips to their employers. 
D. None of the above.

15. When you report your tip income to your employer, there is a lot in it for your. Tip reporting

A. Will show a greater income that may improve financing approval for mortgage, car, and other loans.
B. May increase your social security credits resulting in greater social security and Medicare benefits when you retire.
C. May increase other benefits to which you may become entitled, such as unemployment benefits, worker's compensation, or retirement benefits. 
D. Any of the above.

16. The IRS has put greater emphasis on reporting tip income since tip reporting became law in 1993.

True False

17. Your responsibility as an employee, under the Tip Rate Determination Agreement is that

A. You report your name, social security number, the hours worked or sales made, your job classification, and your reported tips to the IRS if you report tips at or above the determined tip rate.
B. To stay a participating employee, you must report tips at or above the tip rate determined by the agreement.
C. You will not accept tips unless you are in a tip specific industry. 
D. All of the above.

18. Your responsibility as a directly-tipped employee, under the Tip Reporting Alternative Commitment is that

A. You are to verify or correct the written statement reflecting your charged tips.
B. You are to indicate the amount of cash tips received.
C. When reporting your cash tips, you should remember that there is a correlation between charged tips and cash tips. 
D. All of the above.

19. As an indirectly-tipped employee under TRAC, if the establishment has the directly-tipped employee provide the name and amount of tips shared with you, the establishment could provide you with a statement of tips that you would need to verify or correct.

True False

20. Employees often disburse tips out of their earned tips to another employee (tip-outs) and since all tips are taxable income, they must report tip-outs that they pay to other employees.

True False