Trump Promises to Cut Taxes on Tips if Elected

by Creating Change Mag


Former President Donald Trump promises to eliminate taxes on tips collected by service workers. Of course, voters need to re-elect him in November first.

Trump made the promise at a recent rally in Las Vegas.

“So those people that have jobs in restaurants, whatever the job may be, a tipping job, we’re not going after for taxes anymore,” Trump explained to supporters.

Trump specifically mentioned hotel workers as well in his remarks. Presumably, the proposed change applies to all workers in the service industry who collect tips.

While the news seems positive for employees, small business owners may wonder how they benefit.

In fact, taxes on tips place an added reporting burden on small businesses too.

First, according to the Internal Revenue Service, tips include far more than you might think.

The IRS considers tips to include cash received from customers, of course. That includes the couple of bucks you might leave on the table for your waiter or slip into a jar for your barista.

But it also includes gratuities paid through electronic means such as credit cards, debit cards, gift cards or any other electronic payment method.

Even noncash gratuities such as tickets or other items of value fall under this definition.

Finally, the IRS considers any money coming from tip pools, shared tips or any formal or informal tip splitting to be taxable as well.

Employees report any earned tips over $20 per month to their employers and on their taxes.

For employers like small business owners, however, taxes on tipping become a much bigger headache.

First, the IRS requires employers, including small businesses, to retain monthly tips reports from all their employees. This creates an additional administrative burden depending on the number.

Then employers need to calculate the total earnings of each employee adding their individual monthly tips to their wages. This adds up to a slightly different number for each employee.

Employers use this calculation to figure out proper withholding for income taxes and the employees’ share of social security and Medicare taxes. They also use it to calculate the share of social security and Medicare taxes they need to pay.

After all this, employers must report tip earnings for each employee in three separate boxes of each W2 form they fill out.

Since 2013, employees must also withhold an additional 0.9% Medicare Tax for any employee making more than $200,000 per year from wages and tips combined. (Yes, this happens even at small businesses!)

Of course, Trump needs congressional support to make good on his promise if elected in November.

But some restaurant owners, particularly in New York City, already quit the practice of tipping for service employees, anyway. They say increased minimum wages and higher menu prices with larger tips create disparities with earnings of nontipped workers.

Image: Shutterstock






The post originally appeared on following source : Source link

Related Posts

Leave a Comment