THE ROLE OF ETHICAL BELIEFS, PERCEPTIONS OF TAXATION, AND KNOWLEDGE OF TAX LAWS ON RESTAURANT SERVERS’ TIP REPORTING INTENTIONS

Abstract

Tax evasion is a serious and growing problem in the United States. From 2008 through 2010, the Internal Revenue Service estimated underreported taxes at $264 billion. Servers, who receive a large portion of their income through tips, do not always comply with tax laws when reporting their tip income. In some cases, this is intentional and in others, unintentional with servers lacking a proper understanding of tip reporting laws.
This study examines the role of the servers’ ethical beliefs, perceptions of underreporting income, overall perceptions of taxation, perceptions of taxation of tips, and knowledge of tax laws in relation to their tip reporting intent. Additionally, the relation of the type of tip, cash or credit card is examined. Using hierarchical regression, these variables are evaluated in a predictive model of tip reporting intent. The study found that the type of tips, the servers’ perception of taxation of tips, knowledge of tax laws, positive perceptions of underreporting, and negative perceptions of overall taxation were significant predictors of tip reporting compliance.
This study adds to the existing literature with information that can be used to create better training programs geared to increase compliance with tip reporting tax laws.