Restaurant Taxation: Calculating Tips and FICA Tip Credit; Food Donations, Sales Tax, QIP, and CARES Act Relief

Description

The IRS makes it clear that "all cash and non-cash tips an employee receives are income and are subject to federal income taxes." However, capturing, recording, and reporting tips is difficult. Employees are required to complete daily tip records; employers must accumulate, report, tax, and remit taxes on the same. If reported tips are less than 8%, some establishments must allocate any difference to employees.

Sales tax considerations are immense. With 45 states and D.C. requiring the collection of sales tax, and local taxes too, charging, reporting, and remitting these taxes is challenging. In addition to each state and jurisdiction having its tax rate, there most often are varying rates charged for service, tangible goods, liquor, and take-out. Missing deadlines and payments can result in significant penalties. Restaurants, an industry with high cash sales, are often targeted by states for sales tax audits.

In addition to unique challenges, significant tax benefits are available to restaurants. These businesses receive an enhanced tax deduction for food donations and a lucrative FICA tip credit. They are an industry that readily benefits from cost segregation and specific relief in the CARES Act, including the QIP correction.

Listen as our panel of restaurant experts helps alleviate taxing issues related to restaurant ownership. They will cover how to claim the FICA tip credit, best practices for capturing and reporting sales tax and tips, and CARES Act relief applicable to restaurants.