posted
I originally dredged up the minimum wage thread to post this, but I think it deserves its own.
Some random guy decides to reward his waitress with a massive tip, and the government decides that, because of her kindness in talking to him as she served him, they deserve $3,700.
Now, I'm not saying that a $6,300 tip is anything to look down at - but it doesn't seem fair somehow that the government took such a huge bite out of it.
Do you think it would have given the man pause if he had known that his $10,000 in kindness to his waitress would work out to $6,300 worth of kindness toward her and $3,700 worth of kindness to the government?
Also consider that she got whacked with a 37% tax bracket for this individual tip because the one tip for that one pay period pushed her WAY up the payscale. Her overall taxes for the year are likely far lower. Why is this okay?
The more I think about this, the more irritated I get.
Posts: 3960 | Registered: Jul 2001
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quote:Originally posted by FlyingCow: Also consider that she got whacked with a 37% tax bracket for this individual tip because the one tip for that one pay period pushed her WAY up the payscale. Her overall taxes for the year are likely far lower. Why is this okay?
The more I think about this, the more irritated I get.
For the same reason why the government immediately taxes any large single-prize gambling earnings. In almost all casinos, you never even see the portion the gov't takes, they just hand you a check minus the taxes.
I'm not trying to say it's right or wrong, I'm saying it's as right/wrong as what happens with gambling prizes.
Posts: 4313 | Registered: Sep 2004
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posted
I'm not sure I understand the problem. The government taxes income and tips are part of a waitress' income. Of course they taxed it. This is just as "okay" as any other taxation on income.
Posts: 1947 | Registered: Aug 2002
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posted
Now, I may not understand the tax situation with tips, so I could be completely off here.
That being said, I'm pretty sure that a chunk of that money will be coming back to her when she files her tax return. They took an inordinate amount because the wage bracket is calculated by earnings over a certain period, but the actual wage bracket is based on the year period. So, if she's not in the 37% tax bracket on her yearly earnings, she'll be getting the difference back.
Still not great, but it's not like they're just taking the money and keeping it. It's more like, they're forcing her to give them an interest free loan.
Posts: 10177 | Registered: Apr 2001
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quote:Originally posted by Amanecer: I'm not sure I understand the problem. The government taxes income and tips are part of a waitress' income. Of course they taxed it. This is just as "okay" as any other taxation on income.
I think the objection centers more around the amount taken (37%) which is disproportionate to the income bracket she likely falls into otherwise.
Posts: 4313 | Registered: Sep 2004
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posted
in the meantime, the feds get to invest it as they see fit and keep all the profits. (edit: this is why i don't post much...y'all are too fast for me...) Posts: 1379 | Registered: Feb 2002
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posted
Amanecer, I think one of my bigger issues is that, over the course of the year, her tax bracket is far lower. I mean, having worked as a waiter, I can guarantee you it's less than 37%.
So, if this week she makes $10,000 in tips and gets taxed at 37% and next week she makes $100 in tips and gets taxed at 25%, shouldn't that be able to balance out? Shouldn't that one big tip get averaged into the entire year's earnings? [Edit: I hope she does get it back, as mentioned above, but I'm totally on board with the investment comment]
Beyond this, though, I'm not sure if I like the idea of taxing gifts like this. I mean, if someone posts a $10,000 reward for a lost puppy, does the government take $3,700 of it? I don't know, they may. It still doesn't seem right.
Maybe it's because it's so uncomfortable to sit down with the government's hand in my back pocket.
Posts: 3960 | Registered: Jul 2001
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posted
It makes sense that she'd get it back, but I don't like the loss of that money. I mean, $1,200 dollars over the course of a year makes a lot of money if put into a high yield CD or Money Market account.
They took far more than that 37% in the long run.
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posted
Rewards and income (which a tip is... It's income based on quality of a service provided) are NOT gifts. Hence, they are taxed, unlike gifts, which are exempt of taxation to a much higher amount (I think $10,000, in fact).
I see more justified grousing for taking the top baracket percentage and the interest free loan aspect of it all. The gift angle doesn't make sense.
posted
Dead: They don't invest it. They fritter it away and borrow more to fritter it away too.
I was under the impression that waitresses paid 8% tax on their tips regardless... Even if they get NO tips, they still pay as if they were tipped 8% on the check.
Shouldn't she have been taxed 8% of whatever the guy's meal cost?
She WILL get most of this back.. In April.
BB: I don't think the trick in Shawshank would work. I think he would be taxed on the inheritance BEFORE he gave it as a gift. Further, he would have to declare a 30K gift to the IRS which would go against a "lifetime limit." Past the lifetime limit, taxes are assessed.
This being said, I'm not an accountant.. much less a 1940s one. This is just how I understand it and could be wrong.
posted
Oh, I understand now. One thing to keep in mind, is that 37% probably wasn't all income tax. I bet Social Security got its cut as well.
Posts: 1947 | Registered: Aug 2002
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quote:Originally posted by The Pixiest: Dead: They don't invest it. They fritter it away and borrow more to fritter it away too.
I was under the impression that waitresses paid 8% tax on their tips regardless... Even if they get NO tips, they still pay as if they were tipped 8% on the check.
Shouldn't she have been taxed 8% of whatever the guy's meal cost?
She WILL get most of this back.. In April.
BB: I don't think the trick in Shawshank would work. I think he would be taxed on the inheritance BEFORE he gave it as a gift. Further, he would have to declare a 30K gift to the IRS which would go against a "lifetime limit." Past the lifetime limit, taxes are assessed.
This being said, I'm not an accountant.. much less a 1940s one. This is just how I understand it and could be wrong.
Pix
Well that and how obnoxious it would be to get married in the first place, and then fill out all the paper work for said "gift" then secure a divorce, its really not worth it.
It wasnt a serious suggestion, it was more for comedy because the Prison Warden in the movie has the exact same problem as the waitress, only he is inheriting it from his brother.
Posts: 14316 | Registered: Jul 2005
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posted
Last I was told, waiters got taxed on 12%, Pix. That was when I was waiting tables five years ago.
[Edit to add: Also, if the tip was in *cash* she would have been taxed automatically on 12% (or whatever %) of the cost of his meal and be expected to declare the rest. Since the tip was on a credit card, the government will tax her for the full amount automatically. It's the reason I never tip on credit cards, and always leave cash.]
So, gifts aren't taxed up to $10,000? Does that mean if the guy paid for his meal, gave her no tip, then gave her a gift of $10,000 dollars as a sign of appreciation, it wouldn't have been taxed? Or would he have to, say, write her a check? Or mail a check to her, or walk her outside to give it to her?
And what of the reward scenario? Would a bounty on the return of a dog be taxed the same way?
Posts: 3960 | Registered: Jul 2001
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quote:Well that and how obnoxious it would be to get married in the first place, and then fill out all the paper work for said "gift" then secure a divorce, its really not worth it.
For a share of $10K, you'd be surprised how many people would do that.
I have won two big pots in my life:
1) $2K at bingo. At the time, they did hand me a W-2G, but they did not deduct anything. I got reamed when it came to tax time.
2) $7500 in the Florida lottery. They handed me a check for $5700 without any explanation, assuming I knew where the difference went.
37% seems like too high of a percentage; what bracket is that?
Also, do keep in mind that it's considered a deduction. If I understand things correctly, when she files her tax return and the final percentage ends up being less than 37%, she gets some of that back because she technically overpaid, no?
Posts: 3486 | Registered: Sep 2002
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posted
The government needs that money! We're in a deficit as it is....
Now, if you really don't want the gov't taking that $3,700 then we should probably invade fewer countries, give less away to the poor or elderly, provide less for our children, enforce fewer laws, build fewer nuclear bombs, and do less in general.
Posts: 8120 | Registered: Jul 2000
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quote:So, gifts aren't taxed up to $10,000? Does that mean if the guy paid for his meal, gave her no tip, then gave her a gift of $10,000 dollars as a sign of appreciation, it wouldn't have been taxed? Or would he have to, say, write her a check? Or mail a check to her, or walk her outside to give it to her?
For 2006, it's been upgraded to $12,000. This means you can get up to $12,000 in gifts each year before they're taxable. The purpose of this is so that people don't need to report or pay taxes on modest gifts. If you had to pay a tax on every Christmas gift, it would get pretty tedious to figure out. However, the Federal Gift Tax is also cumalitive over a lifetime. Once you have received $345,800 in tax-free gifts (as of 2006), you have to pay taxes on all future gifts.
The issue with this waitress is that it was given as a tip, not a gift. If he had mailed it to her or walked outside and given it to her, there's a good chance she could have gotten away with not reporting it, but it is certainly a little bit iffy ethically.
quote: And what of the reward scenario? Would a bounty on the return of a dog be taxed the same way?
It depends on how it happens. If the person found the dog, returned it, and was suprised to get $10,000- that sounds more like a gift than if a sign was posted saying "10,000 reward." As somebody already said, a reward is not a gift. Rewards are supposed to be taxed. However due to ignorance/ apathy toward the laws, most people would probably not report it.
Posts: 1947 | Registered: Aug 2002
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posted
For that one pay check she could have raised her witholding exemptions up to the maximum of 7 if her boss would have let her. That would have prevented the government from getting an interest free loan at least. Its what I do when my end of the year bonus comes in. It is much higher then my regular pay check, so I get knocked into the same tax bracket she did.
Posts: 3134 | Registered: Mar 2005
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posted
This is very interesting, the difference between a gift and a gratuity.
To me, 15% is a gratuity. 20% is a gratuity. Even upwards of 25-35% is a gratuity.
38,461% is not a gratuity anymore. It's clearly moved from a tip to a gift. Though obviously not in the eyes of the law. If he had given her $20 million dollars, then that would also just be a tip? Bizarre.
What is a gift, then, if not something you give to someone out of kindness or because they were kind to you?
Personally, I feel taxing gifts, rewards, and tips is just absurd. Pay waitstaff a fair wage and let people tip them if they feel so inclined - as it is, their minimum wage is lower and they get taxed on the kindness of others.
Posts: 3960 | Registered: Jul 2001
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quote: Personally, I feel taxing gifts, rewards, and tips is just absurd.
If those things weren't taxed, I think you'd find that employers would suddenly stop paying their employees much of anything. Instead everybody would get lots of generous bonuses/gifts/rewards/tips. If you believe that income taxes are arlight, then these other taxes only make sense.
Posts: 1947 | Registered: Aug 2002
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posted
I am curious, though - What if the man was told: "If you put this tip on your credit card, 63% will go to her and 37% will go to the government. BUT, if you write a check and mail it to her, it will count as a gift and she'll get all of it."
Would he have gone with the second option?
I know I would have. What would you all have done, if given the two options?
Posts: 3960 | Registered: Jul 2001
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quote:Originally posted by FlyingCow: [QB] Last I was told, waiters got taxed on 12%, Pix. That was when I was waiting tables five years ago.
I just started waiting tables this summer (as an upgrade from hosting), and I was told by other servers that 15% is the tax rate on tips. I haven't sat down and done the math to see if this is accurate, though. I just know that rather large amounts of my paycheck (a third is what I noticed once, although I haven't really been keeping track) tend to be taken out, which is quite a change from my hosting paychecks - virtually nothing was taken out of those.
I'm guessing that the tax percentage varies a bit by state and possibly by city, but I don't know by how much.
Posts: 952 | Registered: Jun 2005
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posted
I'm amazed, Nell, that you get a paycheck at all. Mine always just said "This is not a check" because all of my wages ended up being taken as taxes for my declared tips.
Posts: 3960 | Registered: Jul 2001
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quote:Originally posted by FlyingCow: I'm amazed, Nell, that you get a paycheck at all. Mine always just said "This is not a check" because all of my wages ended up being taken as taxes for my declared tips.
You must've been making a boatload in tips, or getting paid diddly wages.
Posts: 4313 | Registered: Sep 2004
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posted
I averaged $80-120 per night (20% or so), and made $2.15 an hour (minimum for servers at the time).
Posts: 3960 | Registered: Jul 2001
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posted
Our hourly is $4.35, but I don't know if that's standard for servers in this area. I'm pretty sure it's above minimum.
Posts: 952 | Registered: Jun 2005
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quote:Originally posted by FlyingCow: [QB] Last I was told, waiters got taxed on 12%, Pix. That was when I was waiting tables five years ago.
I just started waiting tables this summer (as an upgrade from hosting), and I was told by other servers that 15% is the tax rate on tips. I haven't sat down and done the math to see if this is accurate, though. I just know that rather large amounts of my paycheck (a third is what I noticed once, although I haven't really been keeping track) tend to be taken out, which is quite a change from my hosting paychecks - virtually nothing was taken out of those.
I'm guessing that the tax percentage varies a bit by state and possibly by city, but I don't know by how much.
I assume they meant for you only to claim 15% of all the tables you had that night. For instance if a customer leaves a 20% tip in cash, only declrare 15% of the bill. You can't do that with a credit card, because of the paper trail. There is no flat tax rate on tips.
Posts: 3134 | Registered: Mar 2005
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quote:Originally posted by FlyingCow: I am curious, though - What if the man was told: "If you put this tip on your credit card, 63% will go to her and 37% will go to the government. BUT, if you write a check and mail it to her, it will count as a gift and she'll get all of it."
Would he have gone with the second option?
I know I would have. What would you all have done, if given the two options?
Assuming he actually has the cash. He might not, and is now $10,000 in debt.
Posts: 3134 | Registered: Mar 2005
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posted
Stephan, there is a percentage rate of tip that is taxed - otherwise no one would ever declare any cash tips. We were told that if you didn't declare at least 10-12% in the computer system (even if your credit tips came to, say, 5%) that it would raise flags at the IRS.
Taxing tips is how they get away with having a lower minimum wage for servers - they know they'll get their taxes somewhere else.
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Taxing tips does seem sort of mean, since they're widely percieved to be 'optional' informal transactions.
Posts: 15421 | Registered: Aug 2005
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posted
Optional, say, as a form of, I don't know, gift.
I don't know why this bothers me so much. I think it's the Libertarian in me raging against perceived governmental overinvolvement.
Posts: 3960 | Registered: Jul 2001
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posted
Also, I think the average person doesn't understand that what they leave as a tip is also taxed.
Posts: 3960 | Registered: Jul 2001
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posted
If I thought that the servers were getting payed a decent wage without the tip then I could see arguments for considering tips as gifts for tax purposes.
However, knowing that (as mentioned above) wages are probably less than half of a server's income I think it's vital that at least some portion of their tips be taxed (assuming you're not morally opposed to income tax in general).
Consider FC above: say $100 in tips for a night and 6 hours*2.15 $/hr ~= $13 in actual wages...
even if you bump this down to something closer to 12-15% tips (~$60-70) and bumped up the wages to $4.50, you're still making more than twice your wages in tips.
If servers got taxed only for their wages that would be rediculous.
Like others have said, she'll probably get a lot of that money back in april, which is frustrating, but not unjust.
The one thing I did find valuable in this discussion was the tipping on credit card issue. I never thought of it before, but I'll probably try to tip more in cash (at least when I feel a large tip is deserved) in order to help them out a bit more.
Posts: 1038 | Registered: Feb 2006
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posted
You know, its a funny thing to me that when the money belongs to someone who makes a great deal of money, say, the top few percent in income in the country, the government...the current administration, anyway...is all about handing out tax cuts to them, using as its excuse: Well, it's their money, they earn it, and they should get to spend it how they want to. But when it is a normal, hard-working person who works at a job that pays an average amount of money who lucks into a big tip, first thing that happens is there's the government with their hand not just out, but in the person's pocket, taking in excess of a third of it. The individual might get part of that back in their tax refund and they might not. But, is it only "their money, that they should get to spend the way they want" if they're rich to begin with?
posted
Note to all restaurant patrons: If you tip in cash (rather than on your credit card), there's no way for the government to know about the tip unless the server is honest and claims it on his or her tax forms. Not that I condone being evasive on one's taxes. Nor do I think that the average restaurant-goer has $10,000 in cash just burnin' a hole in his wallet.
quote:Originally posted by littlemissattitude: But, is it only "their money, that they should get to spend the way they want" if they're rich to begin with?
Just asking.
Of course!
Welcome to America.
Posts: 1006 | Registered: Jun 2006
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posted
Assuming her pay period was one week, they withheld as if she were making half a million a year.*
Every college student who starts after half a year of no salary faces the same sort of thing.
*Not really - it was probably withheld at the bonus rate - 28% plus about 7.5% fica/medicare plus a little for state is pretty close to the percentage taken.
Posts: 26071 | Registered: Oct 2003
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quote:You know, its a funny thing to me that when the money belongs to someone who makes a great deal of money, say, the top few percent in income in the country, the government...the current administration, anyway...is all about handing out tax cuts to them, using as its excuse: Well, it's their money, they earn it, and they should get to spend it how they want to. But when it is a normal, hard-working person who works at a job that pays an average amount of money who lucks into a big tip, first thing that happens is there's the government with their hand not just out, but in the person's pocket, taking in excess of a third of it. The individual might get part of that back in their tax refund and they might not. But, is it only "their money, that they should get to spend the way they want" if they're rich to begin with? Just asking.
Not quite sure why. This certainly isn't a new policy. Do you use any excuse to spout off against this administration?
Posts: 26071 | Registered: Oct 2003
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posted
It's not this administration, it's pretty much all of them.
I still don't like the idea that they took $3700 dollars before she even saw it. She could have invested that for a year and made several hundred dollars in interest before paying taxes on it in April. At the very least, she could have invested the difference she'd be "getting back" at the end of the year and made a couple hundred off of it.
Personally, I'd love to pay no taxes at all during the year and then write a check on April 15th every year. I'd much prefer to keep that money in a high yield account than let the government squander it then give me back the portion that was mine in the first place.
Posts: 3960 | Registered: Jul 2001
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quote:Originally posted by littlemissattitude: But, is it only "their money, that they should get to spend the way they want" if they're rich to begin with?
Just asking.
Of course!
Welcome to America.
...except that they ARE in a higher tax bracket, and thus are keeping a lower percentage of their money.
posted
I think you have to pay taxes quarterly for income that hasn't had withholding deducted. Could be wrong, though.
-----
It seems there was a bit of confusion earlier on about tax rates on tips. Just to clarify in case any confusion remains: tips are taxed at the same rate as any other income. However, the government doesn't know exactly how much you take home in tips, so they make an estimate based on a percentage (12%? 15%?) of the bills you worked. So if you serve a large party that runs up a bill of $1000 and pays cash, the government will assume you got $120 (or $150) in tips regardless of the actual amount you pocket. Got it? Good.
If I'm wrong, I don't want to hear about it. (Kidding! )
Posts: 1810 | Registered: Jan 1999
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quote:Personally, I'd love to pay no taxes at all during the year and then write a check on April 15th every year. I'd much prefer to keep that money in a high yield account than let the government squander it then give me back the portion that was mine in the first place.
I don't have a problem with the government taking taxes as the money is earned - it's not an interest free loan if you owe the money.
I would like to see ways for this kind of withholding to take the entire year into account so one-time bonuses don't create over-withholding as happened here - that is an interest free loan.
But I'd really love people to have to write a check for their taxes each time they receive money, just so people really appreciate the amount of taxation. It'd be too inefficient and easy to scam to really put into practice, but I'd love to see it.
Posts: 26071 | Registered: Oct 2003
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quote:I was under the impression that waitresses paid 8% tax on their tips regardless... Even if they get NO tips, they still pay as if they were tipped 8% on the check.
Tipped employees are legally required to claim 100% of their earned tips (after tipping out other employees when necessary).
Claiming less than 8% of your total sales raises some big red flags with the IRS, so that would seem like the logical place to cut off your claim...but not always. It's much, much easier to get any sort of loan when you can prove your income. And if you work at a place where you get paid vacation, they pay you based on your average pay, wages+tips, over a certain period of time.
Posts: 5264 | Registered: Jul 2002
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posted
I've never heard of a restaurant that gave tipped employees a paid vacation.
Last night was the first time I did something at the restaurant where I got tipped out instead of just my hour rate. I made $30 more for the night than I would have made doing my hourly job, but I've yet to see how that effects my taxes.
Posts: 21898 | Registered: Nov 2004
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quote:But I'd really love people to have to write a check for their taxes each time they receive money, just so people really appreciate the amount of taxation. It'd be too inefficient and easy to scam to really put into practice, but I'd love to see it.
I love that idea, but I'd make it that each April 15th, everybody has to write out a check for all the money that they owe the government for the entire year.
Posts: 16551 | Registered: Feb 2003
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quote:I've never heard of a restaurant that gave tipped employees a paid vacation.
That doesn't mean they don't exist. Mine gives me a week vacation after a year, two after two years, and three after five. I also have health and dental insurance. Perhaps you're at the wrong restaurant.
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And if you work at a place where you get paid vacation, they pay you based on your average pay, wages+tips, over a certain period of time.
