Tax Workshop 6 - Tip Income   

1. You have the option to declare only a certain percentage of your total sales as tip income.

True False

2. If you don't receive tips directly from customers and instead you receive them from other employees, then 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 2009. 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 2009?

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 can report your tips when your employment ends.

True False

6. If you participate in a tip-splitting or tip-pooling arrangement, report to your employer any portion of the tips you receive and 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 2009) on June 30 and received $10,000 in wages during the year. Greg kept a daily record of tips showing that his tips for June were $19 and his tips for the rest of the year totaled $8,000. He reported 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 tips 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. The following are items to record in your tip record, except

A. Cash tips you get directly from customers  or for other employees.
B. Tips from credit card charge customers that your employer pays you including tips from debit card charges.
C. The value of noncash tips you get, such as tickets, passes, or other items of value. 
D. None of the above.

16. Cash and charge tips you received that totaled less than $20 for any month does not have to be reported to your employer and thus is not taxable income.

True False

17. If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owed on tips reported in 2009,

A. The uncollected taxes will be shown in box 12 of your Form W-2.
B. You must report these amounts as additional tax on your tax return.
C. You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe. 
D. All of the above.

18. You must report allocated tips on your tax return if

A. You kept a daily tip record, or other evidence that is as credible and as reliable as a daily tip record, as required under the rules.
B. Your tip record in incomplete and it shows that your actual tips were more than the tips you reported to your employer plus the allocated tips.
C. Your employer allocated your share of an amount figured by subtracting the reported tips of all employees from 8% of food and drink sales. 
D. All of the above.

19. These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year.

A. Tips for which you did not participate in your employer's Attributed Tip Income Program (ATIP).
B. Allocated tips.
C. Tips you reported to your employer that were more than your share of 8% of food and drink sales. 
D. Any of the above.

20. If not enough social security and Medicare taxes were withheld from the allocated tips, you must report those taxes as additional tax on your return. To do this you must file

A. Form W-2.
B. Form 4137.
C. Form 1040. 
D. Form 1040ES.