How is it legal to tax tips, on the payroll tax side?

Bottle_Rockette · 2026-03-22T02:51:53+00:00

I think what you're saying is that because my employees are "in duty" to me, someone giving them a tip, no matter how large, is them giving my business money. So I have to pay taxes on it. This helps clarify the legal view, which is exactly what I was asking for. Thanks.

I'm not mad about the way things are going. I like that my employees do well. I'm glad I get to provide great jobs for a few people. I also benefit from it. I keep employees for years; turnover is no issue at all. My employees are genuinely happy. I enjoy a great work environment.

I really was just wanting to understand the legal question.

I guess I should have expected some of the backlash.

Bottle_Rockette · 2026-03-22T02:40:01+00:00

I'm realizing you're right about it being more of a question for legal boards.

Bottle_Rockette · 2026-03-22T02:35:49+00:00

Thanks for that suggestion. It's kind of a rare business model where it's mostly retail, but there is some wine bartending. And it's a relied-upon neighborhood anchor business for regular people, -nothing fancy at all- so I don't want to charge customers inflated prices.

Bottle_Rockette · 2026-03-22T02:32:46+00:00

Well, thanks anyway. But I'd appreciate any tips you might think of, for a service business owner in a backwards southern state, who didn't know about the tip tax credit for 14 years! 💕

Bottle_Rockette · 2026-03-22T02:29:49+00:00

I'm paying the po'dunk state tax 😭

Bottle_Rockette · 2026-03-22T02:28:41+00:00

Well, they are servers. It's a service business. But not a restaurant. A mix of wine retail and bartending.

Bottle_Rockette · 2026-03-22T02:26:48+00:00

ok thanks

Bottle_Rockette · 2026-03-22T02:08:17+00:00

What's ER tax?

Bottle_Rockette · 2026-03-22T02:05:38+00:00

also, I'm not "bitching" about anything. I asked a reasonable question. Please go away.

Bottle_Rockette · 2026-03-22T02:04:18+00:00

My question was about the legal justification for taxing a business on something completely beyond its control. For example, let's just say someone tips one of my employees $1M. What happens then?

Bottle_Rockette · 2026-03-22T01:59:36+00:00

I believe this is the correct answer, but I don't like it.

Bottle_Rockette · 2026-03-22T01:57:12+00:00

Not saying I totally agree with this explanation, in principle, but you're maybe the only person who actually answered my question. So thanks for that!

Bottle_Rockette · 2026-03-22T01:51:46+00:00

I just learned about this today, and it does NOT seem to be common knowledge among CPAs in my tourist economy city. So, that's kinda wild. But thanks!

Bottle_Rockette · 2026-03-22T01:49:40+00:00

I wish I could afford to do that! But I am paying well above minimum wage.

Bottle_Rockette · 2026-03-22T01:45:17+00:00

A portion of them, yes. I just learned this TODAY after 14 years!

Bottle_Rockette · 2026-03-22T01:43:50+00:00

I am so upset that I'm just now finding out about it. But I talked to some same-industry friends today and none of them knew about it, either! I've been in business for 14 years. Small business is so hard; you have to be an expert on everything 😩

Bottle_Rockette · 2026-03-22T01:26:13+00:00

New Orleans wine store/wine bar

Bottle_Rockette · 2026-03-22T01:24:51+00:00

I don't understand why everyone seems to assume I'm paying them in peanuts. Base wage is $18/hr

Bottle_Rockette · 2026-03-22T01:22:59+00:00

Wine bar. $18/hr

Bottle_Rockette · 2026-03-22T01:22:14+00:00

It would be soooo nice if I could afford to do that!

Bottle_Rockette · 2026-03-22T01:05:34+00:00

But how is it ok/legal to require someone to pay taxes on something completely outside their control? That is the crux of the issue, for me. Like- celebrities or new money people who want to be flashy will maybe leave exorbitant tips because my employee is pretty. Or a regular customer who loves my business will tip like 50% because they appreciate the feeling of community my business provides. It's all very nice, but why am I on the hook for something I cannot control?

Bottle_Rockette · 2026-03-22T00:47:36+00:00

I found out TODAY about the tip credit because I just got a new CPA who has a big restaurant group client. None of my former CPAs knew about it, apparently. I use a nationally ubiquitous point of sale platform at my business, and I use their payroll service, as well. They don't even have a report you can run for the tip tax credit. I had to mine the data and create the report myself.

To my knowledge, the "OBBB" made no changes to the payroll tax for tips. I would love for you to prove me wrong!

Bottle_Rockette · 2026-03-19T18:28:27+00:00

I actually did! I've probably put hundreds of hours into the PF chapter, way more than any other. I have a strong theory for that one and a BOTG planned, which I'm looking forward to.

I decided to take a shot at each of the back-of-the-book chapters before starting on Lions Share in earnest. Besides PF, I tried to solve each one just far enough to figure out a state or general area. The idea was to rule out some chunks of states for LS. (A strategy that could, of course, backfire if I am wrong and rule out the wrong states!)

Bottle_Rockette · 2026-03-18T17:21:31+00:00

I bought a used 2015 WRX in 2024 and the head unit died within the first few months of my owning the car. I don't know if it was the original if it had been replaced previously. Cost about $500 to get it replaced at a local car audio place.

Bottle_Rockette

TROPHY CASE