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Thread: W-2 Form, please help! ( tax issues for 'employee' dancers )

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    Member GreenLady's Avatar
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    Duh W-2 Form, please help! ( tax issues for 'employee' dancers )

    I apologize if this post is redundant, but I am feeling very overwhelmed and helpless at the moment!

    I worked at a club last year where I was paid an hourly wage as a regular employee in addition to what I made off of dances/tips/etc. I received a W-2 form. My question is how do I report the money I made on the floor? Is it considered tips or do I need a separate form?

    Thanks in advance!

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    Banned Melonie's Avatar
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    Default Re: W-2 Form, please help!

    Since you received a W-2 from this club instead of a 1099, the club considers you to be an 'employee'. As such, under IRS rules you were supposed to report tip income ( i.e. money you earned on the 'floor' ) exceeding $20 per month to the club on a weekly or monthly basis throughout the year, and 'turn over' your tip earnings to the club so it could be run through the club's payroll system with estimated income taxes, social security taxes, medicare taxes etc. withheld by the club's payroll system. However, in the 'real world' that doesn't happen ( and the clubs don't want it to happen ).

    Because this situation arises so frequently, the IRS has created a form 4137 that can be completed by 'employees' who received tip income that was not reported to their 'employer'



    Following the instructions included with form 4137 results in the calculation of the additional reported income, and the additional social security and medicare taxes, that in turn get entered on the appropriate lines of your 1040 tax return.


    There can also be an additional issue if the 'employer' club has reported allocated tip income on your W2. Allocated tip income is basically a number that the 'employer' club pulls out of thin air in order to prove that tipped 'employees' are actually earning the minimum wage. The figure invented by the club for allocated tip income must be reconciled against your actual tip income in order to avoid being taxed on money you didn't actually earn in addition to being taxed on money that you did earn. There's a fairly complete discussion, as well as specific instructions regarding form 4137, at


    I would also add that, because the legal responsibility for reporting tip income in excess of $20 a month falls on the 'employee' dancer ( even though 'employer' clubs typically won't allow this even if the dancer tries to do it ) , failure to report that tip income to their 'employer' throughout the year can potentially result in the IRS assessing ( underwithholding ) penalty charges on top of taxes due. Also, having a significant amount of tip income that was not reported through their 'employer's payroll system is one of those items that will cause yellow flags to be waved by IRS computers - which in turn can serve to increase the probability of an IRS audit. For this reason, my own accountant 'forbid' me to ever work in a club that treated its dancers as 'employees'.

    This is because the combination of the IRS placing the legal responsibility on the 'employee' dancer to report all tip earnings to her 'employer' club, combined with the club's refusal to accept additional tip earnings reports from dancers even if they try to do so ( because it causes the club to have to pay higher unemployment insurance premiums, higher worker's comp premiums, higher social security and medicare taxes on behalf of the 'employee' ) puts the 'employee' dancer between the proverbial 'rock and a hard place'. It's no secret in the exotic dancing industry that, in the past, a good number of 'employee' dancers simply filed their income tax returns based on the reported income listed on the W2 form they received from their 'employer' club ( i.e. hourly wage plus allocated tip income ) ... which ironically lowered their taxes as well as lowered their risk of an IRS audit in spite of the fact that the dancers' additional tip income went unreported. However, this also usually meant that the 'employee' dancer wound up with an officially reported income level near the minimum wage.

    In today's economy, with landlords and lenders now required to perform income verifications, and with so many 'spending side' items being automatically reported to the IRS - i.e. college tuition payments, auto and home purchases, large retail purchases over $3000 ( as little as $1000 in some states ), bank account and/or investment account interest and/or dividend earnings etc. - it's all too possible for an IRS computer to 'figure out' that something is probably amiss when an 'employee' dancer who only officially reported that she earned $8 an hour = $ 16,000 per year also spent $10,000 on college tuition plus $10,000 on apartment rent and utilities plus $10,000 on the down payment to puchase a car in the same year !!!

    ~
    Last edited by Melonie; 03-25-2011 at 11:20 PM.

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    Default Re: W-2 Form, please help!

    ^Yikes.

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    Default Re: W-2 Form, please help!

    well don't let yourself get upset over this ... it's a situation that is shared by virtually every 'employee' dancer in every club that treats its dancers as 'employees', and the situation has existed for years and years.

    As I said above, the only two new aspects are that the IRS now has a huge number of automatic reporting channels set up on the 'spending' side that will attempt to correlate the amount of money that a person is saving / investing / spending with the amount of money that the same person officially reported as earning in the first place, and the fact that would-be landlords / lenders / credit agencies will attempt to correlate a person's creditworthiness / ability to make monthly payments with their officially reported earnings level. Form 4137 provides a 'legal' means for 'employee' dancers to report the additional tip earnings that their clubs would not allow them to report in the officially required manner ... which in turn results in that 'employee' dancer actually reporting the real / correct amount of income she earned to the IRS ... thus avoiding future issues with spending large amounts of money whose origin cannot be officially explained, as well as avoiding future issues with landlords / lenders / credit agencies. The only 'drawbacks' are that the 'employee' dancer is probably not going to like having to pay the income taxes + social security taxes + medicare taxes due on those additional tip earnings, and that ( ironically ) the 'employee' dancer who correctly reports her additional tip income actually increases her probability of being audited by the IRS ( due to the large discrepancy between allocated income reported by the club and actual total tip income reported by the dancer ).

    However, in real world terms, given that dancers are already considered to be 'high audit risk' workers due to their working in an 'adult business' plus working in a 'cash business', there's really no way to know how significant the additional audit risk caused by filing the 4137 form and reporting a significant amount of additional tip income will actually be. But there is also a different aspect to consider as well.

    Undoubtedly this club has a federal ID number ... and just as undoubtedly this club with the same federal ID number has also issued W2 forms to other dancers working at the same club. Another automatic function of IRS computers is to compare individual tax returns to similar tax returns filed by other people in similar circumstances. Thus if you file a 4137 form and report a realistic amount of additional tip income, and if IRS computers follow the club's federal ID number over to the tax returns of other dancers working at the same club who have NOT filed 4137 forms and have NOT reported similar amounts of additional tip income, this may wind up waving a yellow flag drawing IRS attention to all of your fellow dancers as well as to the club itself !!! If this were to happen, if you had already filed your own 4137 form and already reported your additional tip income then the IRS shouldn't have any problem with you at all. However, your fellow dancers and your clubowner may not share that outlook if potential IRS audits resulting from your 4137 filing wind up costing them thousands of dollars in additional income taxes / unemployment insurance premiums / worker's comp premiums / social security and medicare taxes / IRS penalty charges etc. !!! This is yet another aspect of the 'rock and a hard place' scenario for employee dancers who attempt to 'do the right thing' in regard to their own taxes.

    I would also add that, as a result of the new national health care law, the IRS has been authorized to nearly double the number of ( human ) auditors on its payroll this year. This will certainly allow the IRS to significantly increase the number of total audits it can perform. And as I mentioned earlier, the IRS already focuses extra attention on 'adult businesses' and 'cash businesses' because of their general past history of poor income reporting and poor tax compliance. I would additionally point out that, if your club and fellow dancers were to be audited as the result of you filing a 4137 form reporting substantial additional tip income, that the IRS shouldn't disclose to them the reason they were chosen for audit.

    However, in a worst case scenario, if as a result of your 4137 filing and reporting of significant amounts of additional tip income, the IRS were to audit your club and determine that your club has deliberately avoided the reporting through the club's payroll system of additional tip income by ALL of the club's 'employee' dancers throughout the year, and as a result the club has deliberately avoided having to pay large amounts of 'employer' social security and medicare taxes, large unemployment insurance and workers comp insurance premiums, etc. which are all based on dancer income levels as reported by the 'employer' club, that the resulting 'bill' to the club from the IRS and from state unemployment / workers comp agencies for several years worth of unpaid taxes and insurance premiums could potentially bankrupt your club.

    ~
    Last edited by Melonie; 03-26-2011 at 12:56 AM.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    Melonie,

    Thank you for taking the time to explain all of this. I think my situation is helped by the fact that I wasn't at this club very long and didn't make a lot of money there, nor did I make any major purchases in 2010.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    ^^^ yes that will definitely help, as I'm fairly certain that the degree of IRS computer 'yellow flag waving' and the degree of risk of the IRS assigning a human auditor are both directly proportional to the amount of potential extra tax money the IRS is likely to be able to collect as a result of the audit ! If your reported W2 income from this 'employer' club, and the amount of additional tip income you report that you earned at this 'employer' club, are in the 4 figure range, it will probably be ignored by the IRS unless there are some other reasons to draw IRS attention to your tax return.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    Why not report your W-2 on the 1040 and your tip (self-employment income on the pretty simple Schedule C?
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    ^^^ because, from a 'legal' standpoint, an 'employee' working at a single club cannot be the operator of a business whose venue is the same single club.

    Granted that many dancers who work as 'employees' in one club, while also working as independent contractors in another club, 'shift' their unreported tip earnings at the 'employee' club into additional business income at the independent contractor club ... but by the letter of the law this is 'fraudulent' accounting.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    You can only be an employee or an independent contractor. And you have to report your income one way or the other. If that business doesn't support a contention that you are an employee, your only alternative is to act as an independent contractor.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: W-2 Form, please help! ( tax issues for 'employee' dancers )

    If that business doesn't support a contention that you are an employee, your only alternative is to act as an independent contractor
    Ironically, while this is indeed the only alternative ( other than wilfully not reporting the undocumented tip income ), from an IRS standpoint it is also fraudulent. One can't receive an employee W2 from an employer and also claim to be working as an independent contractor business at the same location at the same time !!!

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