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rbdepot32
Returning Member

C Corp Business Income Tax - Tax Deductible of Employees Tips

In a Restaurant business, is Employee's Tips (BOX 7 of W-2, Social Security Tips) tax deductible on the Corporation's Business Income Tax Return?  My CPA says it's part of Salaries and Wages and thus tax deductible.

If that's the case, then it won't match salaries and wages expense on the book because  employee tips does not come from a company's bank account.

 

For example, if a waiter receives $50 tips and his base pay is $100, we report $150 in taxable wages, yet our expense is only $100 on the book(since the $50 Tips is from customers).

So in Salaries and Wage section of Form 1120, is it $100 or is it $150?

By putting $100 it matches the book, and by putting $150 it matches taxable wages.

 

 

 

2 Replies
soultax09
Level 5

C Corp Business Income Tax - Tax Deductible of Employees Tips

don't know how the corp can deduct $150 if it isn't reporting the $50 in tips as revenue.....i'd say deduct $100 plus the corp's share of fica

Anonymous
Not applicable

C Corp Business Income Tax - Tax Deductible of Employees Tips

 to summarize you only deduct wages paid to to the employee.  while the wages box include tips.  you either pay both the employer and employee share on the fica and medicare taxes on the tips or deduct the employee's share from the employees wages.  various state and federal labor laws are involved including minimum wage laws.  

 

this is from IRS instructions for W-2  . 

 

Box 1—Wages, tips, other compensation. Show the
total taxable wages, tips, and other compensation that you
paid to your employee during the year.

Box 3—Social security wages. Show the total wages

paid (before payroll deductions) subject to employee
social security tax but not including social security tips and
allocated tips 

Box 5—Medicare wages and tips. The wages and tips
subject to Medicare tax are the same as those subject to
social security tax (boxes 3 and 7) except that there is no
wage base limit for Medicare tax. Enter the total Medicare
wages and tips in box 5. Be sure to enter tips that the
employee reported even if you did not have enough
employee funds to collect the Medicare tax for those tips

Box 7—Social security tips. Show the tips that the
employee reported to you even if you did not have enough
employee funds to collect the social security tax for the
tips. The total of boxes 3 and 7 should not be more than
$132,900 (the maximum social security wage base for
2019). Report all tips in box 1 along with wages and other
compensation. Include any tips reported in box 7 in box 5
also.

 

 

if you pay the employees share file form 8846 which flows to form 3800.  this gives you a credit for paying the employee's share so you break even.  

 

 

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