Using W-2s will prevent tax-season surprise

Thursday, March 29, 2007 | 7:15 a.m.

Tip earners on the Strip hope to avoid a repeat of last year's tax season surprise, when the Internal Revenue Service asked thousands of casino workers to pay hundreds, even thousands, of dollars more in income taxes on their tips.

Audits weren't part of the bargain when the IRS and Las Vegas casinos agreed to estimate employees' tip income on the workers' W-2 forms, rather than rely on workers to track and report their tips.

Lobbyists with the American Gaming Association say last year's unexpected audit letters were based on W-2 information on tips that didn't match what the IRS expected.

The lobbyists say the IRS was independently tracking workers' tips but wasn't factoring in job and shift changes that occur frequently in the casino business as workers move about within a property.

For example, an "on-call" cocktail server could work a day shift today and a swing shift tomorrow or could step into a host job for a few weeks as needed, with each move affecting the tips she earns. The IRS wasn't nimble enough to adjust to constantly changing tip formulas, casino reps say.

Gaming association officials say the IRS, after inspecting the casinos' payroll systems, will now rely on the W-2s generated by the properties as the final word on each employee's tip income rather than checking it against another source.

That may be of some comfort to employees who were forced to defend their tax records to the IRS last year, although some workers simply paid the tax bills without question.

-Liz Benston