Box 7, W2 Reported tips but the employer charged an automatic service charge to customer and paid staff an hourly wage, not pooled tips. Should tips be reported by me?

[Opus 17]

Did you get cash tips besides your wage?  If so, did you report them to your employer?

[pappyhunter]

No, I did not. I did not receive any tips. One hundred percent of the service charge went to the owner who then paid an established hourly wage which weren't reflected by any service charge amount . I was not paid tips at all. It seems like the Owner is passing his tax burden on to the staff. Do I have any recourse?

[Opus 17]

Is the same money listed twice?  That is, does box 1 show your full salary, and then box 7 shows part of your salary again?

[pappyhunter]

The same money is list twice. Box one has a larger amount I'm assuming is accounting for the owner's breakdown of minimum wage earned. So the employer is claiming tips for me although it is a service charge where my set hourly wage isn't affected by tips. Is what he's doing legal?

[Opus 17]

I'm not sure there is a problem.  The instructions for the W-2 say box 1 is for total wages including tips reported by the employee, while box 7 is for tips alone.  If you were in a tipped position, your tips would be listed twice, so I don't think box 7 changes your tax, it seems to just be a reporting requirement for some reason.  In your case, the employer is charging a service charge but reporting it as tips; I don't think this is technically correct, but I don't think it hurts you, because I don't think box 7 tips change your tax (since they are already in box 1 and box 5).  However, someone else may have more expertise.

On further reflection, the employer may be under-reporting your social security wages.  If the service charges are included in the box 1 wage amount, the box 5 medicare wage amount, and box 7 the tip amount—but not included in box 3 social security wages—then the employer is under-reporting social security.  That saves him 6% of the amount of service charge reported as tips, it also saves you 6% of the amount of service charge reported as tips, and it slightly reduces your retirement credits at the social security administration.


@DoninGA @Hal_Al @VolvoGirl ????

[pappyhunter]

Thank you for your help. Social Security will probably be gone by the time I qualify for it anyway. I'll ask my CPA next time I do taxes. Thanks again.

[Hal_Al]

The employee has to pay social security  tax on the box 7 amount (it's has already been withheld and included in box 4) . The employer may be calling it a service charge, but, for you, it's tips for tax purposes

[TaxGuyBill]

No, it should not be tips for tax purposes.  However, for your reporting, I don't think it will affect anything if it is called tips.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/newsroom/employer-reminder-reporting-tips-versus-service-charges-key-differences...>

Employers still pay their portion of Social Security/Medicare for tips, so the bottom line really shouldn't make any difference.  At least not that I can think of offhand.

[Hal_Al]

No, box 7 tips should not be reported by you, as additional income. The Box 7 amount is already included in the box 1 amount. So, box 7 is only informational. TurboTax (TT) will not count it twice.

Note that your box 1 amount is not the same as your  box 3 amount. Box 3 + box 7  = box 1 (usually). Just enter your W-2, exactly as shown. TT will handle it correctly.

[TaxGuyBill]

I think you mean Box 3, not Box 2.