By: Law Office of Ray Haselman

How Tips Affect Taxes in Florida

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A large amount of Floridians earn tips as a substantial portion of their income. People who wait tables, tend bars, carry luggage, clean hotel rooms, drive professionally, and perform plenty of other services may find it confusing when tax season rolls around to account for their tax documents properly.

There are rules about what constitutes a tip, how an employer must pay, and whether or not you have contributed to a tip pool. Although these rules vary state-by-state and are even covered at the federal level, the employer must always follow which version of the law most benefits the employee.

What Constitutes a Tip in Florida?

Put simply, any time a customer pays in cash (or debit) and tipping is voluntary, any leftover amount the customer adds above the product charge is considered a tip.

If the restaurant adds an amount to a final bill as a “mandatory service charge,” such as for large parties or catering, this is not considered a tip. Employees have no legal right to that money, though many employers give a portion to their servers.

For an amount to count as a “tip” and not a mandatory service charge,” it must adhere to all of the following rules:

  • The customer must determine who receives the payment
  • The employer cannot set the amount or percentage
  • It must be entirely voluntary
  • The customer must have specified the amount

Credit card charges are complicated, as some states rule that if an employer has to pay a processing fee, then that fee can come from the portion left as a “tip.” This amount can come purely from the employee’s tip, leaving the rest of the bill unaffected. Florida law doesn’t mention how to handle the processing fee.

What Are Tip Credits, Tip Pooling, and Dual Jobs?

As of 2020, the minimum wage in Florida is $8.56 per hour. Employees cannot make less than the minimum wage. Employers can only pay less than minimum wage if they make enough tips to earn the difference. This difference is called “tip credit.” The employer must pay the difference if an employee doesn’t make enough during a pay period.

If an employee spends part of their shift doing work that does not earn tips but is related to the work they typically receive tips for, this is known as a “dual job.” The employer can take the tip credit for the entire shift that the employee spends partial time on non-tipped work. An employer is not allowed to take the tip credit if the non-tipped work is unrelated to the typical shift work, such as personal errands for the employer.

Tip pooling is when all employees place a portion of their tips into a pool, which is then divided amongst the employees. Only employees that receive tips regularly can participate. The collection can’t go to managers, supervisors, or employers. The tip pool still falls under the employer’s tip credits rules.

Where Do I Go If I Need Help Counting My Tips On My Taxes?

As always, a local tax professional can help any person keep their financial books in order. If your position puts you in a situation where a large portion of your income is tipped wages, and you’re unsure precisely how to count that on your taxes, give us a call at 786-522-0410.