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

You may have to complete additional calculations and fields on your employees' Form W-2. This occurs when employees do not report sufficient tip income to you over the course of the year. When this happens, you 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 the employees' personal tax returns.

Most large food or beverage establishments must report additional information to the federal government concerning their employees' tip income. If you are subject to these additional rules, you 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.

You should ask your financial advisor for a copy of Form 8846 to claim this credit.