Balancing Act

Many workers claim just enough in tips to safeguard against IRS audits

When it comes to reporting tips accurately, it’s anything but a guessing game for gaming and restaurant employees in Las Vegas. These workers ensure their earnings reports align with IRS regulations, so they aren’t worrying that bars and restaurants nationwide are being examined for underreporting the amount of gratuities their employees earn.

Emily, a former bartender off the Strip who did not want her last name used, says about half of her tips came from gamblers who won big and threw her some cash. “They’d sometimes sit there for my whole eight-hour shift, and tipping me was part of the etiquette,” she says. She split tips with the other employees and says she and the other bartender were sure to claim the same amount so nothing looked suspicious at the end of the night.

It’s the same scenario at nonfood service establishments, such as salons. “Nobody wants to report all of their tips because people live off of those,” says Talitha Thomas, owner of Saints and Sinners boutique salon. She says salons report the entire commission for each transaction, but if someone gets cash there’s no real way to regulate it. “If it’s cash, you can’t monitor; you can just assume they’re not claiming,” Thomas says. She says the number of patrons who tip with a credit card and cash is about even.

Sandy, a massage therapist on the Strip who didn’t want her last name used, says she follows tip compliance, but she is self-employed and prefers her clients pay in cash so she’s not taxed on any of it. She has her own suggestion for the government: “Why not give us two years off from paying taxes on our tips given the down economic state?” she asks. “They already tax our checks.”

National Public Radio recently reported that the IRS is auditing tax forms filed by food and beverage industry workers due to the fact that it doesn’t receive as many tax disclosure forms as it anticipates. But underreporting incidences are rare in Las Vegas, experts say, since most tipped employees operate under a voluntary tip compliance agreement. The IRS wouldn’t comment on whether audits are taking place in Nevada, but a spokesman says it’s simply continuing to stress the importance everywhere of the agreements.

“The gaming industry is one of the most highly regulated and scrutinized industries in the U.S.,” says Grant Govertsen, analyst and co-founder of Union Gaming Group, a Las Vegas-based gaming research and consulting firm. “Consequently, gaming licensees are going to do everything in their power to comply with any and all regulations they are subject to, including tip compliance.”

Tip compliance means that employees and employers who elect to participate report a determined amount of their income as tips, ensuring that they won’t be audited.

“Underreporting of tips is not an issue in our resorts since almost all of our tipped employees are signed up to a Gaming Industry Tip Compliance Agreement,” says Shawn Sani, senior vice president of taxation for MGM Resorts International. “Under this agreement, our tipped employees report hourly tip amounts that are agreed to by the IRS.”

All employees who adhere to these types of agreements are meeting the minimum standards of compliance, but the IRS technically requires that employees report all of their tips. Gratuities accumulated through credit-card sales are automatically reported, but a number of Las Vegans admitted that they don’t report all of their cash tips.

Raphael Tulino, a Nevada spokesperson for the IRS, says unreported cash tips are a “micro-level problem” and says people should be following the IRS guidelines.

Govertsen says more employees nationwide will probably take Las Vegas’ lead when it comes to tip compliance. “Looking ahead, and due to certain high-profile IRS probes over the past few years, I would suspect that more and more employers will opt in on tip compliance,” he says.