My wife is a waitress and paid 1300 in tip out for the year...how do I enter...do I subtract from wages? please help

[mpaul77]

she has reported all tips already but has paid other employees out of her own pocket a total of 1300.  that needs to be deducted.  please help

[Hal_Al]

The simple answer is you are not allowed to deduct tip-outs. The real answer is only slightly more complex. 

There are three ways tips are reported, by employees*, for tax purposes:

1. Box 7 of your W-2. This is the amount you reported to your employer and is already included in box 1 of your W-2 as taxable income. It cannot now be adjusted for tip outs. Your employer was suppose to have already done that. If you believe it's incorrect, you have to ask your employer for a corrected W-2 (that's unlikely to happen).

2. Box 8 of your W-2. This is "allocated tips". The IRS requires your employer to assume you got this much more  in tips, if the amount you reported doesn't meet an IRS standard. This will be added to the amount in box 1, as income, and go on line 7 of form 1040. This also cannot be adjusted for tip-outs (see 

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/tips/tips

However you are allowed to claim an adjustment (see below**), if you believe the amount to be incorrect. But this will invite IRS scrutiny.

3. Unreported tips. These are not already on your W-2. You input it yourself, as described by TurboTaxDarrellM, below. You may deduct tip-outs from the amount your report.

**Allocated Tips. If TurboTax (TT) detects an amount in box 8 of the W-2, it will already have checked "Unreported Tips" at the screen titled "Do any of these uncommon situations apply to this W-2". If not, you should check it. That will take you to a screen where you can enter the correct amount. In your case, you would enter $1300 less than the box 8 amount in the adjustments box. For example if box 8 was $3000, you would enter $1700 in the adjustments box.

*People who work for tips only (no W-2 wages), report their tip income as self employment income.

[DarrellM]

Normally, you would report your tips to your employer, who then includes them on your W-2. Whether included on your W-2 or not, enter your tips in TurboTax with the employer's W-2.

If the tips were reported to the employer and included on the W-2, then there is no need to report them separately.

If the tips were not reported to the employer, jump to the unreported tips in the W-2 entry area:

1. In the TurboTax search box, enter w-2 (with or without the dash) and press the Enter key
2. If that employer's W-2 was already entered – on the W-2 Summary screen, click Edit next to that employer.
   If you haven't entered any W-2's yet, enter it on the Enter "yourname's" W-2 screen, or click the Add W-2 button to add this employer.
3. When the tip employer's W-2 is finished,
   click Continue to the Do Any of These Apply to This W-2? screen.
4. Check the third checkbox for I received tips that I didn't report, and click the Continue button.
5. On the Enter Any Tips You Didn't Report to "employername" screen, fill in the appropriate adjustment boxes.
   (Click on the Explain This text for help figuring out the amounts.)

If you reported your tips to your employer, but they were not included on the W-2, ask your employer for a corrected W-2 (Form W-2C) that includes the tips you reported to them.

For more information refer to the following link:

https://ttlc.intuit.com/questions/1899731-entering-unreported-tips