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Allocated tips on a W-2 are an amount your employer reports as part of your income. Allocated tips are based on a percentage of your food and drink transactions. Not all employers are required to denote allocated tips on a W-2. If you work at a large restaurant or bar and receive tips directly from customers, your employer probably reports allocated tips.
On your tax return, you must enter the amount in the allocated tip box just as you do the other amounts on a W-2. This amount is in Box 8 on the form. If you can prove that you received a lower amount in tips than was entered in this box, you can declare the lesser amount. However, you must have documentation to support your claim; this is sometimes difficult in restaurant tipping.
Other Filing Concerns
Some servers share a portion of their tip income with co-workers who bus tables and with bartenders. Documenting these tip-outs and showing the amount actually received is a challenge. If you report tips to your employer that are less than the Internal Revenue Service-directed share of 8 percent of food and drink sales, your employer typically doesn't have to allocate tips on the W-2.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.
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