Q. I am a waitress in Florida claiming single – 1 on my W-4.  I am paid bi-weekly.  My paystub follows:
55.42 hours @ $3.77 an hour
GROSS Pay     $908.18
FICA                    56.31
MEDI                   13.17
FIT                       86.03
TotVolDed              0.00
CASH TIPS         699.25
This leaves me with a net pay for a two-week period of $53.42.  PLEASE is this correct?

A.  Employees in industries where tips are prevalent have an interesting situation.  Most jobs fall under the Fair Labor Standards Act (FLSA) provisions where employers are required to pay the current federal minimum wage of $6.55 per hour (effective July 24, 2008).  Those who receive tips can fall under an alternate system of minimum wage rules that reduces that rate to $2.13 per hour.  The key is that total tips received plus cash wages equals at least the standard minimum wage.

In your case, you received cash tips of 699.25 over the last two weeks.  This money is NOT tax free.  Your employer did the right thing by adding tips and wages together, taxing the total, and then subtracting what you already received in tips.  Basically, the $53.42 is what is left over after subtracting taxes from your regular wages.  Your true take home page is $757.62, or $19569.42 per year.  It is entirely correct.

One possible flaw in all this is if any of your tips came through customers adding the amount to their credit card charge.  I hope you are also receiving those tips which would be added to your gross wage and not subtracted at the end.  Obviously, if you never received the tip, it cannot be classified as Cash Tips and removed from your check.