Taxation of tips - what is the settlement on them?


As it is commonly known, the scope of taxation with personal income tax has been defined very broadly and covers many different sources of income. People working in the service industry very often have a problem with the proper classification of the received tips. The following article describes how tips are taxed and how the income should be accounted for.

What is a tip?

The provisions of the act do not explain what is meant by a tip. Therefore, it is necessary to use the dictionary definition. In common understanding, a tip is a small sum of money usually given for the service provided. It can therefore be concluded that a tip is a customary, discretionary and voluntary cash benefit, usually an expression of consumer satisfaction with the quality of service, most often hotel or gastronomic.

Taxation of tips

As the tip is a cash benefit, it is subject to personal income tax. It should also be noted that no provision of the Act exempts tips from taxes. However, clarification is needed as to which source of income tips should be included in. We consider two possibilities in this case - considering that tips are income from employment or income from other sources. The resolution of this issue is important for the method of calculating income tax, because in the first case the employer as the payer collects the tax on tips, while in the second case, the employee self-calculates the tax.

Tips as income from employment

When analyzing tips as income from the employment relationship, it should be stated that due to the structure of the open catalog of benefits included in the income from the employment relationship, each payment received by the employee in connection with the employment relationship constitutes his income from the source from which the income is subject to income tax. unless they are benefits related to the employment relationship, but exempt from tax under a separate provision. The dominant view in court judgments is that while the tip is not remuneration for work, it is a benefit received by employees in connection with the performance of work for the employer.

As a result, if the money in the form of tips addressed by name to a specific employee goes to the employer, or the employer collects all the funds from the tips and then transfers them to the employees, the tips are income from the employment relationship and are taxable together with the wages and salaries. work. In these cases, there is a direct link between the work performed and the tip received.

In such circumstances, tips therefore constitute income that the employee receives from the performance of the work. The basis for the payment and taxation of tips is the employment relationship between the employee and the employer. The tax is payable by the employer acting as the payer.

Example 1.

The waiters working in the restaurant give the employer the tip you receive at the end of the day. The employer then distributes the total to the waiters. In this case, we are dealing with income from the employment relationship.

Gratuities as income from other sources

Another situation is when the amount of the tip is given directly to the employee, who then keeps the amount for himself, without the employer. In this case, the tip represents the employee's income from other sources, as shown in the annual tax return, together with income from other sources.

Example 2.

The bartender receiving the tips does not pass them on to the employer, but keeps them for himself. This means that he should independently tax the value of tips received by accounting for them as income from other sources.

Summing up, it should be stated that the method of settling the amount of the received tip depends on the adopted method of proceeding. If an employer is involved in a way of allocating tip amounts, we are dealing with income from the employment relationship. As a result, the employer must collect an advance payment, which in this case has the status of an income tax payer. Such income is accounted for together with other income from the employment relationship.

If, on the other hand, the employer does not participate in the distribution of the amount of tips and the employee has the right to keep the amount received solely for himself, the employee is solely responsible for settling the tax on this account. He should independently determine the tax base being income from other sources and calculate the amount of tax.

Finally, it is worth noting that the settlement of tips by the employer will also have consequences in the field of calculating ZUS contributions. Well, if tips are paid by the employer as income from the employment relationship, they will be the basis for the assessment of insurance contributions. If, on the other hand, the employee receives tips directly from the client and keeps them for himself, they will not be added to the basis of assessment of insurance contributions.