I am a massage therapist working as a contractor. I receive a commission as well as tips. Does my employer need to separate tips from commissions on my pay stub, or are they allowed to be lumped into one sum?
Your question is not easy to answer because you have indicated that you are a contractor and that you have an employer. Those things are mutually exclusive. You cannot be both while performing the same function for the same payer. Check out this CPA Now blog to help you determine whether you are in fact a contractor or an employee.
If you are a contractor, you are paid for your services without any obligation by the person contracting for your services to withhold taxes or cover you for any benefits (such as unemployment or worker’s compensation, among others). In that case, a remittance advice attached to your payment should include all amounts paid to you. This would include fees and tips, which would be your income. The facility might deduct certain costs from the gross amount if that is part of your contract. In this case, the net amount paid to you would be less than the gross, and the amounts deducted would be available to you on the Schedule C you include with your tax return.
If you are an employee, the employer should include the amount of the tips on your W-2 as compensation at the end of the year. As an employee, you are responsible to report tips to your employer, and they are included in your compensation for all tax purposes. That includes your deduction for FICA, income tax, etc.
My response is directed at W-2 reporting. Pay/check stub reporting may be different. I recommend you consult a CPA for further guidance on your situation.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Elizabeth W. Kidd, CPA, is a retired accounting instructor in Erie, Pa.