What about tipped employees?
Employees must report cash tips over $20.00 in writing each month. This includes directly received tips as well as charged tips, which are turned over to the employee later. Employers must collect income tax and employee social security tax on tips reported by their employees. These taxes may be withheld from employee wages, or from other funds employees make available.

Employers may have to complete additional calculations and fields on their employees' Form W-2. This occurs when employees do not report sufficient tip income over the course of the year. When this happens, employers must report an estimated additional tip income amount on each employee's W-2, as a result of a calculation termed "Tip Allocation." Ultimately, this will have a direct effect on employees' personal tax returns.

Most large food or beverage establishments must report additional information to the federal government concerning their employees' tip income. If employers are subject to these additional rules, they must file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips.

Publication 531, Reporting Income from Tips, contains additional information and can be requested by calling 1-800-TAX-FORM, or by visiting the IRS Web site.

A business tax credit is available to restaurant owners for the amount of employer paid FICA taxes on excess tips. Excess tips are those not used to bring a tipped employee up to the applicable minimum wage. Restaurant owners should ask their financial advisor for a copy of Form 8846 to claim this credit.