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Self-Employment Tax On Tips
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BobKamman
Level 15
2 weeks ago
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I have exactly two clients whose income includes tips, and both are self-employed. Under the new tax and budget law, one of them qualifies for the new deduction. (The other doesn't because her husband puts them over the AGI limit.) But there is nothing that excludes tips from SE tax. And I think employees get the same treatment, because the deduction only applies to tips reported to the employer, and shown on the W-2 with FICA tax paid by the employee.
I predict this won't go over well with many tip recipients, especially those who aren't paying any income tax because of other deductions and credits. They will still receive wage statements showing FICA tax withheld, same as usual.
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sjrcpa
Level 15
2 weeks ago
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It doesn't go over well with their employers either. They still have to pay the employer share of FICA on reported tips. My hair stylist, who is also the salon owner, wasn't happy. She thought no tax on tips meant no tax of any kind on tips for everyone.
The more I know the more I don’t know.
BobKamman
Level 15
2 weeks ago
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I haven't looked at those employer rules for a while. The FICA tax only applies to the tips that bring the employee earnings up to minimum wage? As I tell clients who want to go into that business, 90% of small businesses fail, unless they are restaurants, in which case it's 95%, unless they have a liquor license and then it's only 85%.
sjrcpa
Level 15
2 weeks ago
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"The FICA tax only applies to the tips that bring the employee earnings up to minimum wage?"
I think that's the old rule, from back when I waited tables to put myself through college. There was no reporting your tips to the employer then.
Now employees have to report their tips and I think they are all subject to FICA. Someone who does payroll or has restaurant clients please correct me if I am wrong.
The more I know the more I don’t know.
qbteachmt
Level 15
2 weeks ago
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"that bring the employee earnings up to minimum wage?"
Even then, that's only States with a tip wage offset. Seven of us don't have this.
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