IRS issues revised tip reporting Publication 531

We have specialized in the restaurant industry for over 30 years.  Jeff Brooks has been Director of Taxation for restaurant chains and has worked closely to help restaurateur with the tax and financial needs.

 The Publication 531 can help tipped employees prepare their 2011 personal income tax returns, but there is also useful information for employers as well. The publication includes information on “allocated tips.” These are tips that an employer assigned to an employee in addition to the tips the employee reported to the employer for the year. An employer can only use a tip rate lower than 8% (but not lower than 2%) to figure allocated tips if the IRS approves the lower rate. The publication advises employees that their regular pay may not be enough for their employer to withhold all the taxes they owe on their regular pay plus their reported tips. If this happens, employees may give their employer money until the close of the calendar year to pay the rest of the taxes and avoid an underpayment of estimated tax penalty on their personal income tax return.

If employees do not give their employer enough money for taxes, the employer is instructed to apply their regular pay and any money that they give for taxes in the following order:

(1) All taxes on the employee’s regular pay.

(2) Social Security and Medicare taxes, or railroad retirement tax, on their reported tips.

(3) Federal, state, and local income taxes on their reported tips.

Any taxes that remain unpaid can be collected by the employer from the next paycheck. Publication 531 for use in preparing 2011 returns can be viewed on the IRS website at


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Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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