Tammy Wise : Thanks, Veronica and welcome, everybody. On behalf of Sharon and myself, I would like to thank you for joining us today. If you have questions after the webinar, we ‘ve included the electronic mail cover where you can send your questions. additionally, there is a resource slither of publications that you can refer to after today ‘s webinar. Cosmetology covers so many unlike occupations such as but not express to hairstylist, colorist, complete technician, nail artist, manicurist, salon or watering place coach, massage therapist, beautician, wedding and consequence stylists, makeup artists, esthetician, barber, shampoo person and this is good a few. so as we go through this presentation today, all of our examples of scenarios could relate to any of these positions. Sharon, can you go over the agenda for today ‘s webinar ? Sharon Huff : Of course, it is my pleasure. There are so many items that we could cover today during our webinar, all relating to tip income. But with our limit to time, we have selected topics that based on our discussions with industry are some of the most misunderstood. We will be providing you with useful data, arsenic well as exposing and debunking myths about tips received and the requirements to report them. here is what we will cover. What is considered tip income in the cosmetology industry ? We will discuss precisely what tips are. What are the responsibilities of employees, salon owners, cosmetology school students and independent contractors relating to tip income .
You will learn that each of the categories barely mentioned have similar but different requirements under Internal Revenue Code. What are gratuity excuse me, what are the report and read keeping requirements of topple, reporting tips through steer of sale arrangement used in the cosmetology a well as app for keeping track of tips received. Tammy, back to you. Tammy wise : Thanks, Sharon. Internal Revenue Code Section 61 is the starting point for our discussion. The section clearly states that gross income needs all income from whatever source derived. so merely stated, tips are considered income and therefore they are taxable. It is the law. Tips received are required to be reported on your federal income tax hark back and are subject to income tax. If you are an employee, tips are defined as wages under the Internal Revenue Code and consequently they are subject to Social Security and Medicare taxes. If you are not an employee, tips are gross receipts or early income topic to income tax, and they could be subject to self-employment tax .
then now let ‘s get into the details for a better understand. Tip reporting on your federal income tax hark back helps with personal fiscal growth. Tip coverage is important because we’ve all applied for loans or government benefits and what is the inaugural thing they want to say, oh, your tax return. That ‘s because the total you ‘re eligible to receive is based on your report income. so increased point report can have other benefits. not related to the IRS, increased tip report increases overall income and can affect an increased submit benefits, like your unemployment or disability or workers benefits like workers recompense or union benefits like social security at retirement, and report can besides make it possible to save more through a retirement account like a 401k. Improved fiscal report can besides help with purchasing a home or a car a well. You can achieve a better credit rat and a lender can make increased limits and better terms making it possible to buy a bigger or nicer home car or both. so, what is a tip off ? To be a lean Revenue Ruling 2012-18 cites four factors from Revenue Ruling 59-252. The requital must be spare from compulsion. So basically, the customer decides the total and is not bound by policy established by the salon. such as it is not mandated like an automatic 20 % added to the bill or 18 % added, the customer makes that decision. The customer must have the nonsensitive right to determine the amount of the requital. sometimes they decide that the tip is a share based on what the come of the bill was, or sometimes it ‘s just a flat amount, or sometimes, and this very relates to me, they round it up so that the beak ends up to be a round measure, approve, because I like to put it in my checkbook as, I want that total to be a circle sum ; I want it to be 120, I do n’t want it $ 119 and so much cents. But the payment can not be negotiated or dictated by employer policy. And the customer has the correctly to determine who receives the payment. so when a customer pays for their service, and then provides you with extra money, it is considered a tip. It is done without negotiation, as I said from the salon or the stylist and normally it ‘s in the form of cash, or a recognition or debit card. Tips can be received from customers or sometimes from other employees. For exemplar, if there is an employee who washes the client ‘s hair, it may be accustomed to tip out to that employee. so in that situation, the hairdresser will report their tips, less the amount provided to the shampoo person and the shampoo person will receive the lean out, who receives the tip out, excuse me, will need to report that amount received as a tiptoe, if after the services performed the node states, here ‘s a little endow for you and provides you some money. You might ask, is that a endowment ? Well, no, the answer is no, it is a lean. The customer can not determine the characteristic of the money received. It ‘s the facts and the circumstances determine what the money is and how it is to be treated. so, next we ‘re going to discuss topple coverage requirements. thus, first on the tilt is serve charges. Sharon, would you mind covering service charges please ? Sharon Huff : I sure will Tammy. If the salon applies a service load that is not considered tip income because as Tammy has explained, the node did not have loose will in deciding that measure. That amount is called a serve tear and is not a peak but can be a engage. For exemplify, if the salon charges 18 % on the circular for a bridal party, the 18 % is collected by the salon and it can be distributed to employees. If distributed to employees, the sum is share of their wages, not tip. The employer will add these amounts to your wage statement and Form W-2. Veronica, do you have a polling question ? Veronica Tubman : well, yes, I do, Sharon. Okay, everyone, let ‘s take a count at our foremost poll question. A salon adds a 20 % fee for all bridal parties. The bridal party was the lone salon activity for that day and comprises 100 % of the gross receipts for the day. The salon had no early customer activity. The sum is, is it a, tip ; b, a gift ; c, a bonus ; five hundred, a service charge. so please take a hour and review the question again then click in the radio button that you believe most close answers the question. And I ‘ll give you a few more seconds to make your decisiveness. indeed, let ‘s see, look at it again and think about it. Which one is it ? Okay, we ‘re going to stop the poll now. And we ‘ll share the correct solution on the future slide. And the future answer is D, a service chart. then, let ‘s take a expression and see what our response pace is. Okay, well, that ‘s a bang-up response rate, 90 %, you were listening. good job. Okay, indeed just remember that a service charge, as the customer does not have loose will in determining that come. adept job. Sharon, I ‘m turning it back over to you so that you can continue to share about tip off responsibilities.
Sharon Huff : Thanks, Veronica. There are similar, but slightly unlike rules and regulations, depending on if you are an employee, salon owner, booth renter or even a cosmetology school doing it. For Internal Revenue Code, part 6053 ( a ) paraphrase, every employee, who in the run of their employment, by an employer, receives in any calendar month tip, which would be cash, credit cards, debit cards, and even gift cards of $ 20 or more shall report all such tips in a written statement supply to their employer on or before the tenth day following such month .
give cards are considered a cash equivalent, since they have a monetary value. thus, for model, for the month of January, the employee must report their tip of $ 20 or more by the tenth day of February. An employer may request the employees report their tips more frequently, such as daily or weekly. Employees must keep a contemporaneous and accurate read of tips received so that they can report those tips to their employer, as I merely said, by the tenth day of the following month, and an employer may require the employee to report more frequently. An employee ‘s day by day tip log must have the surveil information, the employee ‘s name, cover and their social security number, their employers diagnose and address, the time period or date covered, so if it is or less than a month, the box should have the date covered. so if you ‘re reporting for a two workweek period, you would list the two week period ; differently, you would list it for the calendar month. The IRS has publication 1244, Daily Record of Tips and Report to Employer to help employees with their coverage tips. And I just realized I skipped, let me go back to the prior swoop and I do apologize. therefore, again, we ‘re talking about the employee tip log and besides included are the dates worked with tips received from customers and other employees ; credit, debit and give cards received ; tips paid out, Tammy gave an exercise of a stylist that may share their tips with a shampoo person and the employee name who you paid the tip to, the date furnished to your employer and the total sum received ; do not include any servicing charges. Alright, I apologize for my small snafu. I ‘m going to go ahead now and start talking about the IRS publication 1244 .
IRS has publication 1244, Employees Daily Record of Tip and Report to Employer, to help employees with point report. The publication includes Form 4070 and 4070A ; one is to report to the employer and the other is the employee gratuity log. These are available free of charge. Ordering information will be provided late in this display. hera on the screen door is our shape 4070A .
The shape has boxes for all the command items. You must include general information such as the identify and address, an employer ‘s name, and the month in the class or a short period payroll, a payroll may be a two-week period or weekly that the tips are received. The log must include date worked ; tips received from customers and other employees ; credit, debit, gift batting order tips received ; and tips paid out with the appoint of the employee who was paid. daily record keeping is highly important and is required under police. These forms are developed to insist to assist the employee with their record keeping. This can be used as a template to create your own peak logarithm. Some employees will use a calendar, diary or other similar recordation items to manually capture their tip. And that is okay, so long as it includes all of the information shown on the screen. There are even versatile apps available. We ‘re lone going to name a few such as TipSee, Tip Counter, TipMe, and Tip Report. As I said, these are merely a few. Each of these apps can be downloaded mighty to your phone and will help employees keep track of peak on a daily weekly and monthly footing. It is very crucial to note that no count what method is used, the employee must include all ask items. The stress is on the detail daily record keeping as point in a manner that is complete. It must besides be accurate to the IRS if you ‘re – excuse me ; it besides must be accessible to the IRS if you ‘re asked to provide proof of your peak income. If employee fails to report all tips to their employer as required by police, there is another method acting to report and pay. The employee can report extra tip off on Form 4137 Social Security and Medicare Tax On Unreported Tip Income. This imprint is attached to the union to the employees federal income tax fall. form 4137 will calculate the employee ‘s share of Social Security and Medicare tax and this will be added to the amount due on the employee ‘s federal income tax render. form 4070, that ‘s besides part of the publication 1244. This phase is completed by the employee who receives the gratuity and given to their employer and is retained by the employer .
issue 1244 contains 14 copies of the Form 4070. So that ‘s enough for one per month, plus two extra. If you ‘re reporting tips, semiweekly and using the publication 1244, you would need to decree another copy of the 1244. This shape was created for your use and public toilet. As you can see, the form has all required items on the left side, your identify and address, your employer’s diagnose and address, the calendar month or payroll time period you received tips over $ 20 and your signature. On the right side are boxes for your social security total, your cash tips received ; credit, debit, give received ; and the sum of tips paid out, if there are any. I have highlighted boxes three and four with the arrows that you see on the screen door. Box three is to individually state the tip out and box four adds all the tips together received in cash or credit rating card and then subtracts the come paid out to arrive at web tip. The net tips are the taxable sum to the employer excuse me, to the employee. And ultimately, a box for the go steady signed and submitted to the employer. Veronica, why do n’t we pause here for our second polling wonder ? Veronica Tubman : Why, thank you, Sharon. Well, audience it ‘s time for our second poll question. thus put your thinking caps on. A contemporaneously prevent tip diary needs to include is it a, cash tips alone ; b, credit or debit batting order tips only ; c, all tips less document tip out ; or d, 100 % of all tips received. Please take a infinitesimal. Remember what Sharon just shared with us. Review the wonder again then click in the radio button that you believe most closely answers the doubt. And I’ll give you a few more seconds to make your choice. So, merely remember a contemporaneously keep point diary needs to include ? Is it a, cash tips only ; b-complex vitamin, credit, debit circuit board tips only ; c, all tips less document tip out ; or d, 100 % of all tips received. Okay, we ‘re going to stop the poll nowadays and will plowshare the chastise suffice on the next slide. And the correct answer, brake drum roll is c, all tips less document tip out. So let ‘s take a look and see how everybody did. Oh, no, our reception rate was only 32 %. So I ‘m going to call on Sharon to give us some clearness regarding this polling interview to help everybody out. Sharon, can you help us out ? Sharon Huff : I surely will. so as we ‘ve been talking about all tips do need to be reported and possibly we had some of our participants, Mark column excuse me, item d, 100 % of the tips received. The cause why that is not correct is we do not want the employee to pay taxes on tips that they shared with others. so if the employee, get ‘s say, tipped out 10 % to excuse me, $ 10 to shampoo person, and they had received $ 100 in topple, we would ask that the employee report 100 minus $ 10, which would be 90, and then the shampoo person would report 10, then the total would be 100. But the reason why deoxycytidine monophosphate is correct, it ‘s all tips, less attested tip off out. The IRS wants to have 100 % of all tips received but in this font, it would be reported by two people, the stylist and the shampoo person. I hope that provides some clarification for our participants. Veronica Tubman : Okay. Thank you, Sharon. We appreciate that clarity and that help with that interrogate. That very helps us out. indeed, hey, Tammy, tell us more about salon owner peak obligations, please .
Tammy Wise : thank you, Veronica. I will. so while the employees are required to report their tips to their employer by the tenth day of the calendar month, following the calendar month that they received the tip, well, the salon owners have some duty. The owners are required to withhold the employee ‘s share of the Social Security and Medicare taxes, which is presently at a rate of 7.65 %. So the employees, they have to pay their contribution of the Social Security and Medicare taxes. And then the employer besides has to pay their share of the Social Security and Medicare taxes, which that was besides at 7.65 % of the tips reported, so both the employee and the employer are going to pay their plowshare of the Social Security and Medicare taxes. And then to accurately pay that amount, it is imperative that the salon owner has a work and excuse me routine in place for employees to report their tips. And the action and procedure must intelligibly be clearly communicated to all employees to avoid the administrative errors. If a payroll servicing is being used, it ‘s besides authoritative that the salon owner let that payroll service know that your clientele receives tips thus that when they set up your visibility, they know that tips will be reported by the employees. so this is very significant because they need to know that tips are going to be reported so that they are reported on the owners quarterly federal employment tax Forms 941 and the employees Form W-2. then tips can be paid out to employees either daily or included in their paychecks. so, one reason that the employer may want to include the tips in the paycheck of their employees is to ensure that there is enough income to cover the Social Security and Medicare taxes on tips the employees earn. Because remember I said that they have to withhold the employees share at 7.65 % of the tips reported. So there ‘s got to be adequate money there to pay or to withhold Social Security and Medicare. so paying tips over fourth dimension and each yield period, it ‘s going to help reduce the total ascribable by the employee on tax day, and it ‘s just dependable on tax design. therefore, Veronica, let ‘s take our third base poll question nowadays. Veronica Tubman : Okay, audience, let ‘s see who was listening to Tammy. And now it ‘s meter for our third poll question. And it reads, if an employee reported $ 200 in tips for the last pay menstruation, how much would the employer withhold for the employees contribution of FICA tax ? Is it a, $ 7.65 ; bel, $ 15.30 ; vitamin d, I ‘m deplorable, vitamin c, $ 19.13 ; or d, $ 20.75. so please take a minute, review the motion again, think about what Tammy equitable shared with us and then click in the radio button, you believe most close answers this wonder. And I ‘ll give you a few seconds to make your decisiveness. so equitable take a few more seconds to think about those things that she shared with us. And click the radio receiver release that you believe most close answers this question. Okay, we ‘re going to stop the poll now and we ‘ll share the correct answer on the following screen. And the answer is b, $ 15.30. So lashkar-e-taiba ‘s see how everybody did on that one. Okay, the reaction rate was 78 %. therefore guess what ? We ‘re going to ask Tammy to give us a little snatch more clarity on this question, on our third poll question .
Tammy, can you help us out with this ? Tammy Wise : I sure can. So I think this one just might have been precisely a little spot confusing and I did stress the 7.65, so I think that those that got it incorrectly might have guessed a, but it was good a mathematics question. so since they reported $ 200, we’re going to take $ 200 times 7.65 % and that comes out to $ 15.30. So the employer would withhold $ 15.30 on $ 200 of tips that were reported during that workweek, by the employee on those tips. So you can see it is entirely $ 15.30 but if you ‘ve kind of figured that out over the course of a year that all of this money would be unreported, if it was n’t being taken out by the pay menstruation, either weekly or semiweekly, and you had to pay it at the end of the year, you ‘re going to get a large tax bill. So I hope that helps all of our consultation, Veronica. Veronica Tubman : Okay, Tammy. We sincerely appreciate you with that. It ‘s constantly good when you have some subjugate count experts around to provide some clarity to our polling questions. It actually helps. adept resource. Okay, Tammy, let ‘s keep this going with salon owner tip off obligation. Tammy Wise : Okay, I sure will. I’m certain we have some salon owners out there and they operate in states where they are allowed to pay a tip off wage. Well, studies in the industry have shown that the huge majority of employers were out of conformity with their legal duty to ensure that workers reached their entire minimum engage when their tips are less than the tip recognition. so in these states, here ‘s what happens, if the union minimum engage is $ 7.25 and the salon owner pays the tip employees $ 2.13 per hour, the employee needs $ 5.12 worth of tips to make up the minimum engage planning. Well, if the tips are less than $ 5.12 per hour then the salon owner must pay the deviation by increasing the engage rate and this is compulsory. Okay. The studies are showing that owners are out of submission on this sphere. Okay, there are some salons that tied operate under a no tap policy and they do n’t even apply a serve charge. Well, if this is the salons policy, the IRS would want to see that this message was distinctly communicated to clients. And additionally there should be some screen of a written notification provided to the employees with consequences for accepting tips. We have been told that salon owners may not allow tips but alternatively suggests that their clients purchase retail products. It ‘s surely an owner ‘s prerogative, but if there is no signage, it would be unmanageable to support the no tip policy, specially if the IRS questions you .
signage and supporting policies demonstrate the owners purpose of not allowing tips to be given to their employees. so, now we ‘re going to move on to booth renters and their tip off obligations. Sharon ? Sharon Huff : Thanks, Tammy. Booth renters are besides known as mugwump contractors, they are not employees. A booth tenant rents space in the salon and operates their business as separate and distinct from the salon owner. The booth renter is creditworthy for keeping phonograph record of all income earned and received. As previously discussed, per Internal Revenue Code Section 61, income includes income earned from the services performed, income and/or commissions earned on products sold and tips received from customers. For a booth tenant, since they are not an employee, they report tips they received on their union income tax return key as another source of income. For example, a sole owner would file form 1040 US individual income tax return with a Schedule C, which is the form to report profit or loss from a business that a exclusive proprietorship used to report business income and expenses and then they ‘re going to file Schedule SE, which is a self-employment tax so that they can pay self-employment tax, if applicable. Or income may be reported on phase 1065, which is a u return of partnership income, or even Form 1120 which is our uracil bodied income tax return. Remember, under IRC 61, all income received is taxable. It ‘s time for our fourth and final poll question. Veronica, let me turn it over to you please. Veronica Tubman : Okay, thanks a fortune, Sharon. therefore, let ‘s think about the truly good data that Sharon and Tammy has shared with us, as we are going to go ahead improving and talk about our fourth poll interview. An independent contractor or a booth renter received a entire of $ 125 from their clients. The price of the service itself was $ 100. The node purchase $ 10 of product. How much income would the independent contractor report on their federal income tax restitution ? Is it a, $ 125 ; boron, $ 115 ; deoxycytidine monophosphate, $ 100 ; or d, $ 110 ? so, please take a minute and review the question again and think about what Sharon and Tammy shared, then pawl in the radio button that you believe most closely answers the motion. And I ‘ll give you a few more seconds to make your selections. therefore just let me read that one more prison term. An independent contractor or booth renter received a sum of $ 125 from their client. The cost of the service itself was equitable $ 100. The node purchased $ 10 of product, how much income would the independent contractile organ composition on their union income tax fall is it a, $ 125 ; barn, $ 115 ; degree centigrade, $ 100 ; or d, $ 110 ? Hopefully that gave you enough time to look at that question, review it, roll that information that we good shared with you about and click the radio receiver push button that you believe most closely answers that motion .
Okay. We ‘re going to stop the poll now and we ‘ll parcel the right answer on the adjacent chute .
And the correct answer is a, $ 125. so, that was the independent contractors ‘ booth rent received a total of 125 from their customer, the cost of the service itself was 100, the customer purchased $ 10 of products and the wonder was, how much income would the mugwump contractor report on their federal income tax return ? And that was $ 125. So let ‘s merely take a look at how the hearing did. Okay. I see that our response rate is not in truth effective, it ‘s alone 74 %. So we ‘re going to ask Sharon, to give us some clarity and help us out with this motion indeed that our audience will be on track. Sharon ? Sharon Huff : Yes, Veronica. so, as Veronica shared with you and I mentioned previously, the measure is $ 125 because a salon owner, independent contractile organ, the total total they received is 125 and that was comprised of $ 100 for the servicing $ 10 from products, and nowadays we ‘re up to 110. And then $ 15, which you have to read into here is the peak. So the three components, $ 100, $ 10 of intersection, and $ 15 of lean compromised the full measure of $ 125. sol, that is the correct answer, $ 125. Veronica Tubman : Okay, thank you so much. We appreciate you. And that gave us some clearness on that wonder. It was a little catchy, but we thank you for that. And we know that our hearing took notes on that one. So Sharon, looks like you ‘re going to cosmetology school students tip obligations next, I think. Sharon Huff : Yes, and I will be happy to cover that. Students at cosmetology or even the barber school, they have to spend a certain ask total of time on the floor, performing hair and beauty services for the customers of the school .
This is a statutory compulsory share of their educate. They are performing services as students in prepare. They are not independent contractors because they are not in business for themselves .
They are students and their services are part of their license requirements. They are provided with a position, often referred to as a clinic to train and are told by the school what to do and when to do it. I remember when my sister was in cosmetology school, her teacher would have to come at certain points to check her work and make indisputable that what she had done on me, her baby, was accurate. Since students are not even licensed, they can not perform these services outside of the school ‘s insomniac eyes. Cosmetology and barber students tip from performing services while in school are income subject to income tax but they are not submit to Social Security and Medicare tax or self-employment. Cosmetology and barber students tip from performing the services while in school should be reported as other income per Internal Revenue Code Section 61A on the front of the student ‘s income tax reelect. Tammy, would you like to start as we could Tammy, would you like to help cover some of our few normally asked questions. Tammy Wise : I certain would, Sharon. Well first base we have sally and she owns Best Cuts Ever Salon and she works as a hairdresser. And she has some patriotic customers who have been with her for more than two decades. Oh, I can relate to that because I ‘ve been with my hairdresser for more than two decades. And many of her customers feel like old friends during their prison term in the professorship getting a haircut, they frequently talk about their personal, the tips they give feel more like a thank you and not a tap. Well, Sharon, what do you think ? Are these very tips ? Sharon Huff : yea. As the owner of the salon, the tip is reported as business income amounts received from all customers, regardless of the years of kinship are income and must be reported on the union income tax return key. Tammy, do we have another example ? Tammy Wise : Yes, we do Sharon. Vivian works at Best Cut Ever Salon as a hairdresser. She uses her topple money to pay for decorations for her booth, fuel for her car. sometimes she picks up groceries on our way home plate and since her tips are used for necessity items, are they actually income ? Sharon, what do you think ? Sharon Huff : Yes, Tammy. The amounts received from all customers are income and must be reported on the federal income tax hark back. immediately, if Vivian is a booth ball carrier, the amount is reported out as the business income. If Vivian is an employee that total is reported to her employer as tip by the tenth day of the following calendar month. The employer will add that sum to Vivian ‘s W2. Tammy, can you let us know about resources that are available to the diligence ? Tammy Wise : I can do that. Well, IRS has respective publications that provide excellent information on tiptoe income, reporting the tips, recording tips, and guidance for employers or employees. These products can be downloaded from IRS web site at www.irs.gov or ordered by calling 800-829-3676. All of these publications are available detached of charge. And you may want to consider ordering for your employees, indeed first up, we have Publication 531 Reporting Tip Income. This publication gives you a good summary of keeping a gratuity diary, reporting tips to your employer and reporting tips on your tax return. This publication is available in English, Braille and large print. Sharon talked a lot about publication 1244 and that publication includes the Form 4070A, Employees Daily Record of Tips, which you can use as a template to prepare your own tip diary if you do n’t want to use the booklet, but remember, you must include all of the elements. And this publication besides includes human body 4070, Employees ‘ Report of Tips to Employer. You can use this imprint or your employer might have some other method acting for reporting tips, such as their point-of-sale system or their time clock. This issue is available in English, Braille, large mark, and Spanish. Next we have Publication 3148, Tip on Tips, a usher to tip income report for employees who receive tip income. Well, just as the claim states this issue is for employees and explains the employees coverage requirements. The publication 3148 is available in English and Spanish.
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Employers, I do n’t want you to feel left out, we have Publication 3144 Tips on Tips, a Guide to Tip Income Reporting for Employers and businesses where peak income is accustomed. Well, precisely as the title reflects, this issue is going to give you information about requirements. This publication is available in English, Braille, and bombastic print. now, ultimately, this is the one that you ‘re going to be most matter to in it is Publication 4902 Tax Tips for the Cosmetology and Barber Industry. The purpose of this issue is to educate the work force of the cosmetology and barber industries on federal filing, report and payment obligations. This publication is available in English, Spanish and Vietnamese. And this publication talks about workshop owners who is an employee, workshop owners and employer tax responsibilities, booth renters tip income responsibilities for the employer or booth renter, and the employee point report responsibilities. That ‘s precisely about everything we covered in this webinar. The IRS besides has recorded tip webinars that provide extra information. You can view these webinars at www.irsvideos.gov. Remember, you can download these publications from the IRS web site at www.irs.gov or order by calling 800-829-3676. The IRS has a program dedicated to tips, National Tip Reporting Compliance and Sharon and I are both a part of this platform and we ‘re two of the subjugate count experts. We have a quite a few more and we answer questions relating to tip income. so if you have a question or a request, please submit it to our e-mail corner at Tip.Program @ irs.gov. If necessary, you may even request some of the publications from us and we can normally send those publications out within a few days. Sharon and I would like to thank you for taking your time and attending this webinar. Veronica, so that ‘s all we have for right now, so I ‘m going to turn this back over to you. Veronica Tubman : Okay. Thanks, Sharon and Tammy. Okay, audience, hello, again .
It ‘s me, Veronica Kaufman Veronica Tubman and I ‘ll be moderating the question-and-answer seance of this webinar. Before we start the question-and-answer session, I want to add my thanks to everyone for attending today ‘s presentation, tip data for the cosmetology industry. You took time out of your agenda to join us and we precisely want to let you know how much we appreciate it. Earlier I mentioned we want to know what questions you have for our presenters .
thus here ‘s your opportunity. If you have n’t input your questions, then you still have clock. Go ahead and click on the drop down arrow following to ask question, type your question in the airfield and pawl transport. I see some of you have. Tammy and Sharon our subject count experts, they ‘re going to hang around and they are going to help us answer these questions that you ‘ve given us. One thing before we start, we may not have time to answer all the questions submitted. however, let me assure you, we will answer as many questions as meter allows. So get ‘s get started so we can get as many questions answered as possible. So lease ‘s take a search at our questions. Tammy and Sharon, you cook ? Okay, ladies. Our first wonder says my customer gives me a $ 25 Starbucks calling card. Is this a topple ? What do you think Sharon ? Sharon Huff : Yes, that actually is a tip off. If you recall earlier in the display, I mentioned that lean, that money received besides includes endowment cards .
endowment cards are what we call cash equivalent. You can promptly turn those into cash, so that would be reported to your employer as a tiptoe. Veronica, anymore ? Veronica Tubman : sure. We have lots more ladies, so I ‘m about to toss the ball to Tammy. Okay, I work as a shampoo person and sometimes customers give me money and the hairdresser pays me a certain sum per shampoo. Am I only required to report the money the hairdresser provides to me ? Tammy wise : Well, I can decidedly help here Veronica. So, no, the shampooer is required to report both the money that the customer gives and what the hairdresser gives. So first of all, remember what is a tip off, that ‘s money that a customer gives freely, and they determined who they give it to. So the customer is tipping the shampoo person. And then the hairdresser is tipping out. so, both monies are tips and Internal Revenue Code of 61 says, all money must be reported. So the shampoo person is going to report both of those amounts to the employer as their topple income. so, Veronica, are there more questions out there ? Veronica Tubman : Oh, yes, Tammy. Our hearing has given us some actually good questions, so here we go. What is the remainder between cosmetology tips and waitressing tips ?
Is there a remainder ? I ‘m going to toss that to you Sharon. Sharon Huff : I ‘m happy to discuss this. So the definition of a tap is not diligence specific. so if you are a cosmetologist, a masseuse, a waiter, waitress, if you ‘re a taxi taxi driver, it all reverts back to Internal Revenue Code Section 61, which says that all income is taxable. so this tip would be taxable, regardless of whether you ‘re a cosmetologist or solve in the food and beverage industry or even if you’re working in a casino, possibly you ‘re a slot accompaniment or a wag trader, the tips are taxable, does n’t matter the industry that you work to. Veronica Tubman : Okay. Alright, ladies I am reviewing the question. Sharon Huff : Veronica ? Veronica Tubman : Yep. Thank you, my dear .
Reviewing these questions, they are so good. I ‘m thus excite with the interaction from our hearing and I appreciate it. therefore here ‘s another question, is a tanning salon character of that industry ? And that was a interrogate that came up. Is tanning salon a part of the industry ? Tammy Wise : I ‘ll go ahead and take that for you, absolutely. A tip diligence, just kind of like what Sharon just hit on, I mean it can be anything. So any industry where tip, it is accustomed, it is considered to be a topple industry. so if tips are received, and it ‘s more than $ 20 in a given calendar month, they are required to report their tips to their employer and even if it ‘s less than $ 20 in a month, they ‘re still required to pay income tax on that measure and report it on their income tax return. thus, yes, a tanning salon, that ‘s separate of the cosmetology industry, and they would need to report their tips. But even if it was n’t part of cosmetology, they still get tips and would n’t be required to report that. Veronica Tubman : Okay, Tammy, therefore in the lapp respect with this interrogate, I have another one for you. Will this rehearse besides be applied to the chase and animal groomers ? Is this the same thing ? Tammy wise : It is the same thing. It actually doesn’t matter if people that start getting tips I equitable ca n’t believe how many places get tip income nowadays and that ‘s a very thoroughly motion. Because I know when I take my dogs to get groomed, absolutely they expect tips and thus they should be reporting their tiptoe income, precisely as everybody else is that is earning tip report it. So it very does n’t make a difference who they are or what type of service they ‘re providing. If they are earning tips, they should be reporting that income as required by the law. Veronica Tubman : Got it. Okay. We appreciate that. These are some in truth, very estimable questions. Okay. Let ‘s see. I have something for Sharon. The salon I work at has a policy to assert an automatic pistol tip of 18 % for wedding party. Did I understand you to say this is not a lean ? Sharon, did I understand that correctly ? Sharon Huff : That, you did Veronica, because the salon automatically puts on this serve load besides known as an car gratuity and the customer did not have barren will to either tip a higher amount or a lower sum that is considered a service charge, it is not reported as a tip. Your employer will take the service charge amount and report that, and it will be reported as an extra amount of wages. so, when you ‘re completing your shape 4070 with the sum of tips that you ‘ve received, you ‘re not going to include that come because it is a service charge and not a topple. Veronica Tubman : Okay, got it. Okay, Sharon. Going to need you to we have a few questions on the sale of products, so see if you can help out with that. Just clarify the tip income received as a separate sum from business expenses, such as cost of goods are sold or other products ? so how does that relate to the tax render, if you could help us out with that, Sharon ? Sharon Huff : Alright, I ‘m going to make certain that I can understand that question. so, Veronica, I am going to paraphrase it and let ‘s make sure that I ‘m on the same page. So I believe what I ‘m hearing is that I possibly have barely completed excuse me a customer, whether doing their hair or possibly masseuse, possibly makeup, and the customer purchased something from me. And let ‘s say that the price of this detail is $ 15. I believe what I ‘m hearing is, do I need to include that $ 15 in my income and then can I take an expense ? Is that the motion, Veronica ? Veronica Tubman : There you go. You got it. Sharon Huff : Beautiful. I good wanted to be for clarity. thus yea, that ‘s a intersection of $ 15 that you sold will be included in your crude income. And yea, as a salon owner, or an mugwump contractor, you would take an expense in the expense assign, whether you ‘ve filed the Schedule C, which is your sole proprietorship, or you ‘re filing a bodied reelect, your 1120, a partnership fall 1065, there are spaces for you to be able to take that either as an expense of the supplies or as partially of cost of goods sold out. thus, identical dependable question. You have the income at the circus tent part of your reelect, and then you ‘re going to take an expense against your income at the bottom section of the return. Veronica. Veronica Tubman : Yes. Alright. Sharon Huff : I think I answered you ? Veronica Tubman : Yes, you did. Sharon Huff : excellent. Veronica Tubman : Yes, you did. Thank you so much .
Okay. Let ‘s stay back at you, Sharon. A client pays the salon for their services, and then sends a requital through Venmo or Zelle. Is that money considered a tip and if so, is it reportable ?
Sharon Huff : I like these questions, because it shows that our consultation is very attentive, and they would like to learn. We are moving more and more into electronics. We do n’t have identical much money. A fortune of people do n’t even carry money. And so if a customer pays the salon owner, the barber, the masseuse, and then sends extra money, which we ‘re going to call a peak through an electronic device, Venmo, Zelle, there ‘s one called Cash App, we have Apple Pay, Google Pay .
There are then many of these electronic payments, because the nature of the requital to the overhaul supplier was in concurrence with the service that was provided, that is still going to be a peak .
therefore if you remember when we talked about Internal Revenue Code Section 61, all tips are taxable, careless of their kind. So whether they were cash, credit, debit. now, we should besides include app, such as the Zelle and Venmo and endow cards that we talked about. Back to you, Veronica .
Veronica Tubman : thank you. Okay, Tammy, thrown a ball at you. If I lone receive $ 15 in tips during a month, am I required to report those tips to my employer and it ‘s a bipartite interrogate ? tammy fresh : Okay, that ‘s good to know it ‘s two parts and they were listening, for certain. so, that’s great that person caught on to that. indeed, because they only earn $ 15 in a month, the answer is no. That is not required to be reported to their employer. If they if any employee earns less than $ 20 in tip income, that ‘s a full of less than $ 20 in a month, you ‘re not required to report that come to the employer. Veronica Tubman : Okay. then, what ‘s the other separate – tam wise : yea, go ahead. Veronica Tubman : I think you got it, Tammy. I was so anxious, you got me going there. Am I required to report this come on my tax hark back ? I think you answered but can you restate it for me ? Tammy Wise : Yes, absolutely. It does have to be reported on the tax return .
But there is a little silver line in this. Okay, even though it has to be reported on the tax return, you ‘re not going to have to pay the Social Security and Medicare taxes on it. so, there is a little silver line, while you ‘re going to have to pay me income taxes, merely, you ‘re not going to have to pay Social Security and Medicare taxes but barely like we ‘ve been saying, because section 61 does country that all income received is subject to federal income tax, thus. I know Veronica, you said there ‘s lots of questions. So I ‘m sure you ‘ve got another one or two out there for us. Veronica Tubman : Okay, I ‘m going to toss the ball at Sharon. Someone says they’re independent contractor and their friend, it ‘s constantly, when it comes from a ally, told them that they do n’t have to report any of their tip income. Sharon, what do you think about that ? Sharon Huff : Well, I can attest that I ‘ve heard this wonder before, because my sister worked as a accredited cosmetologist for a while, and we would have the biggest crusade. Well, sol and sol said, and so and indeed said, so let me set the record, square. All income received is going to be taxable income. And we appreciate the opportunity to debunk myths that are out there and passed around from generations to generations, or for possibly person who ‘s newly started, they get some advice from person who has been in the industry for a while, but that is considered a topple and would need to be by rights reported. Veronica Tubman : Okay. Thank you a lot. Okay, ladies, I’m going to toss this up to both of you. In May person depart working for an employer and didn’t report the tip that they earned during May. That was anterior to their resignation. How do they report that income ? And should the income be reported as tip income to the fresh employer ? Can you help us out with that ? Tammy Wise : Veronica, I ‘ll take that one for you. That is an amazing question. And again, they were listening, please do n’t report that to your newfangled employer. The new employer should not be paying the Social Security and Medicare taxes on that income because you were n’t their employee at the clock it was earned. And we see this all the clock, say, a person worked for person and during the month, they quit and they did n’t report that point income, and does n’t matter what occupation you ‘re in. So what would happen is, you report that income on your tax hark back, barely like we ‘ve talked about, and remember that mannequin 4137 we talked about earlier and that ‘s used to calculate the Social Security and Medicare taxes, you ‘re going to use that form, you ‘re going to attach it to your federal income tax the form 1040 and the two between the 1040 that calculates your income tax and the shape 4137 that calculates the Social Security, Medicare taxes, those two get added together, and then you will have your taxes. But never report income that you earned while working from one employer to a unlike employer, then just remember that. Okay, thus please do n’t report it to your new employer. Veronica Tubman : Okay. All right. so tammy, we have a patronize customer. He is a season slate holder for professional football team. He was paying for his haircut and a shave, and he gave his tickets for the game to his barber because he was n’t able to attend the game. Is that considered to be taxable ? Tammy Wise : Yes, it is. I know that ‘s credibly identical disappointing. But it ‘s just like the endowment card, anything of rate that ‘s received as a tip then the rate of that is taxable and it ‘s considered a gratuity, and it needs to be reported. so if it ‘s an employee, then he ‘s going to report it to his employer by the tenth day. If he is n’t an employee, then he ‘s going to report as gross income, either on his Schedule C or on the 1065 partnership fall or on the 1120. But yes, whatever the value of those tickets were will be the come of the tip income. Veronica Tubman : Okay, thank you so much, ladies. Audience, unfortunately, these were great questions but that ‘s all the fourth dimension that we have. I want to thank Tammy and Sharon, to provide us with sharing their cognition, their feel their expertness, for answering your question. Before we close the question-and-answer session, Tammy, what winder points do you want the attendees to remember from today ‘s webinar ? Tammy judicious : well, first and foremost, I want them to remember that peak are constantly taxable, regardless of your profession. so if you receive tips as an employee, you must report them as wages to your employer. If you ‘re not an employee, tips are crying receipts or they are other income, which may be subject to self-employment tax, but they ‘re constantly going to be subject to income tax. Tips received by students who are performing services at cosmetology schools as share of their aim are not submit to Social Security and Medicare tax or even self-employment tax, but they are extra income. So still, some reminders for some employees, keep a log and it ‘s required, and it has to be day by day. And it ‘s of all peak received, and tips paid out to other employees, each and every day. The form 4070A that ‘s used for your use or it ‘s available for your habit. And you can use it as an exemplar if you want to make your own log.
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Some of the key areas are cash tip, and then your recognition and debit card tips, tips paid out to other employees and the names of those employees that you tipped out to. Submit the sum of tips you received, similar to the human body 4070, to the employer, no late than the tenth day of the following calendar month or your employer could have some other methods in which you need to report the tip. And they might tied ask for it more frequently. Employers, you need to remember to educate and monitor your employees on procedures. You might use the point-of-sale systems for reporting the gratuity or even the time clock, approve. Make it part of your on-boarding and hiring procedure and cover it when you have meetings with your employees. If you use a payroll service, make certain that they understand that your business receives tap income and let them know that so that they can set up your visibility to show that tips are going to be reported by your employees. The data is needed so that they properly report tips on your quarterly federal employment tax Forms 940 and the employee ‘s Form W-2s. Process reported tips through payroll and withhold the income, Social Security and Medicare taxes. Download and request publication 1244, which includes the form 4070 and Form 4070A to make available to your employees. You can go to www.irs.gov and search under forms and publication. And remember, we have that fantastic issue, Publication 4902, Tax Tips for the Cosmetology and Barber industry. It ‘s going to be a valuable resource to both you and your employees. Veronica, I ‘m going to turn it back over to you. Veronica Tubman : thank you, Tammy. Audience, we are planning extra webinars throughout the class. To register for all approaching webinars, please inflict IRS.gov, keyword search webinars. Just choice Webinars for Tax Practitioners or Webinars for Small Businesses. When appropriate, we will be offering certificates and CE that are credits for approaching webinars. So that ‘s something to think about. We invite you to visit our video recording portal at www.irsvideos.gov. There you can view archive versions of our webinars, including the ones on tip income, big resource for you to keep, very good information to have. Again, a big thank you to Tammy and Sharon for a great webinar and for answering your doubt. I besides want to thank you, our attendees, for attending today’s webinar on Tip Information for the Cosmetology Industry. We sincerely appreciate you. We would just like for you to take a few minutes to complete a abruptly evaluation before you exit the webinar. If you ‘d like to have more sessions like this one, let us know. If you have thoughts on how we can make this better or if there ‘s something more that you would like to partake, then you let us know that adenine well. If you have requests for future webinar topics or pertinent information that you ‘d like to see, possibly in an IRS Fact Sheet, or Tax Tips or frequently Asked Questions on IRS.gov, then please include your suggestions in the comments section of the sketch .
merely go right ahead, click the survey button on the sieve to begin. If it does n’t come up, check to make certain you disabled your pop-up book blocker. It has indeed been a pleasure to be here with you. And on behalf of the Internal Revenue Service and our presenters, we would like to thank you for taking time out to attend today ‘s webinar. It ‘s very significant for the IRS to stay connected with all taxpayers, individuals, tax professionals, diligence associations, along with federal, state of matter and local government organizations. You make our subcontract a lot easier by sharing the information that allows for proper report. Thanks again for taking time out of your day to attend the webinar. We hope you find the information presented today helpful. You may exit the webinar at this meter. Thanks again. Be well. Take concern .