Restaurant Payrolls The information in these materials, and that provided by the presenter, is provided for informational purposes only and should not be considered, nor should it substitute for, legal, accounting, and other professional advice. If you require legal advice, or need other professional assistance, you should always consult your attorney to discuss your particular facts, circumstances, and business needs. Tax Professionals who require continuing education (CE) from the IRS, please note this seminar has been approved by the IRS for CE credits. 2018, PAYCHEX, Inc. All rights reserved.
Today s Objectives identify why restaurant payrolls are complex explain the responsibilities of the employee and employer review the taxability of tips and meals highlight TEFRA, TRAC, and TRDA and their impact on restaurant payrolls, and understand the FICA Tip Credit. 2
Why Are Restaurant Payrolls Complex? There are several forms of wages with varying tax treatments. An employee s paycheck may include: regular earnings paid by the employer tips and gratuities banquet tips service charges, and meals. 3
Related Terminology Fair Labor Standards Act (FLSA) meals tips and gratuities tipped employees service charges 4
Employee Responsibilities Three basic responsibilities: 1. All tips in writing 2. Signed statement to employer 3. Records of daily tip receipts 5
Employer Responsibilities Ensure employees receive minimum wage. Tip credit Tips to minimum Federal and Local laws Overtime calculations 6
Tip Credit Example: Federal Minimum Wage $7.25 Maximum Tip Credit $5.12 Minimum Wage Less Tip Credit (cash wage) $2.13 7
Tip Credit cont. Example: Federal Minimum Wage $7.25 Maximum Tip Credit $5.12 Minimum Wage Less Tip Credit (cash wage) $2.13 8
Tips to Minimum Example: Assume an employee paid at minimum wage works 40 hours during the week. 1. minimum wage x hours = minimum required by FLSA $7.25 x 40 = $290.00 2. EE s rate x hours = direct wages $2.13 x 40 = $85.20 3. minimum required by FLSA direct wages = tips to minimum $290.00 - $85.20 = $204.80 needed in tips to bring employee to minimum wage (tips to minimum), or the employer must make up the difference 9
Taxability of Tips Social Security and Medicare Federal Income Tax Federal Unemployment Tax State and Local Income Tax State Unemployment Tax 10
Taxability of Meals Three conditions must be satisfied for meals to be non-taxable: 1. Were the meals furnished in kind? 2. Were the meals provided for the convenience of the employer? 3. Were the meals provided on the employer s business premises? 11
TEFRA What is the Tax Equity and Fiscal Responsibility Act (TEFRA)? Who must comply? Defining a large food or beverage establishment 12
TEFRA cont. What is the Tax Equity and Fiscal Responsibility Act (TEFRA)? Who must comply? Defining a large food or beverage establishment 13
TEFRA Tip Allocation Directly Tipped Employees Indirectly Tipped Employees 14
TEFRA Regulations Calculating Tip Allocations Good Faith Agreement Individual Gross Receipts/Directly Tipped Hours Method Reporting Tip Allocations Form W-2 Form 8027 (and 8027T, if applicable) 15
TEFRA Regulations cont. Calculating Tip Allocations Good Faith Agreement Individual Gross Receipts/Directly Tipped Hours Method Reporting Tip Allocations Form W-2 Form 8027 (and 8027T, if applicable) 16
TRAC Tip Reporting Alternative Commitment (TRAC) Employer responsibilities IRS responsibilities Signing up for TRAC 17
TRAC cont. Tip Reporting Alternative Commitment (TRAC) Employer responsibilities IRS responsibilities Signing up for TRAC 18
TRDA What is the Tip Rate Determination Agreement? How does TRDA differ from TRAC? 19
FICA Tip Credit Credit for FICA taxes paid on tips that exceed minimum wage Claimed at the end of the client s tax year No income tax deduction for the FICA claimed as the credit 20
FICA Tip Credit 1. Total earnings paid by employer $2.25 x 40 hours = $90 2. Federal minimum wage requirement for FICA tip credit $5.15 x 40 hours = $206 3. Wages not subject to credit (federal wage requirement for FICA tip credit total earnings paid by employer) $206 $90 = $116 4. Creditable tips (total tips reported wages not subject to credit) $240 $116 = $124 5. Amount eligible for FICA tax credit (creditable tips x 7.65%) $124 x 7.65% = $9.49 per pay period 6. Potential annual savings per employee $9.49 x 52 weeks = $493.48 21
SUMMARY 22
Paychex Service Tip Network TM Track employees tips Automatically calculate the tip sharing and pooling amounts Distribute tips electronically with no prefunding required* Tip Allocation Good Faith Agreement or Individual Gross Receipts/Directly Tipped Hours *Must pass Due Diligence to qualify 23
Paychex Service cont. Shortfall Report FICA Tip Credit Report 24
Paychex is Preferred by Top Accounting Organizations For Your Clients and Your Own Firm CPA.com, a division of the AICPA Latino Tax Professionals Association (LTPA) National Association of Enrolled Agents National Society of Tax Professionals 25
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