Question

why are allocated tips shown on Form W-2?

Answer 1

Allocated tips on a W-2 are an amount your employer reports as part of your income.Allocated tips are based on a percentage of food and drink transactions.Not all employees are required to donate allocated tips on a W-2.If you work at a large restrauunt or bar and receive tips directly from customers, your employer probably reports allocated tips.

Your responsibility

On your tax return you must,enter the amount in allocated tip box just as you do other amounts on a W-2.This amount is in Box-8 on the form.If you can prove that you received a lower amount in tips,that was entered in the box, you can declare the lesser amount.However you must have documentation to support your claim; this is sometimes difficult in restaurant tipping.

Other filing concerns

Some servers share a portion of their tip income with coworkers who bus tables and with bartenders.Documenting these tip outs and showing the amount actually received is a challenge.If you report tips to your employer that are less than the Internal Revenue Service-directed share of 8 Percent of food and drink sales,your employer typically does not allocate tips on a W-2.