Section 4327-1 - Special Rule for Tips(a) Withholding of Income Tax in Respect of Tips. (1) In General. Subject to the limitations set forth in paragraph (2) of this subdivision, an employer is required to deduct and withhold from each of his or her employees' tax in respect of those tips received by the employee which constitute wages. (For provisions relating to the treatment of tips as wages, see Section 13009(n) of the code and Section 4309-3 of these regulations.) The employer shall make the withholding by deducting or causing to be deducted the amount of the tax from wages (exclusive of tips) which are under the control of the employer or other funds turned over by the employee to the employer (see paragraph (3) of this subdivision). For purposes of this regulation the term "wages (exclusive of tips) which are under the control of the employer" means with respect to a payment of wages, an amount equal to wages as defined in Section 13009 of the code except that tips and noncash remuneration which are wages are not included, less the sum of: (A) The tax under Section 13020 of the code required to be collected by the employer in respect of wages as defined in Section 13009 of the code (exclusive of tips); and(B) The amount of taxes imposed on the remuneration of an employee withheld by the employer pursuant to State and local law (including amounts withheld under an agreement between the employer and the employee pursuant to such law) except that the amount of taxes taken into account in this subparagraph shall not include any amount attributable to tips.(2) Limitations. An employer is required to deduct and withhold the tax on tips which constitute wages only in respect of those tips which are reported by the employee to the employer in a written statement furnished to the employer pursuant to Section 13055 of the code. The employer is responsible for the collection of the tax on tips reported to him or her only to the extent that the employer can, during the period beginning at the time the written statement is submitted to him or her and ending at the close of the calendar year in which the statement was submitted, collect the tax by deducting it or causing it to be deducted as provided in paragraph (1) of this subdivision.(3) Furnishing of Funds to Employer. If the amount of the tax in respect of tips reported by the employee to the employer in a written statement furnished pursuant to Section 13055 of the code exceeds the wages (exclusive of tips) which are under the control of the employer from which the employer is required to withhold the tax in respect of such tips, the employee may furnish to the employer, within the period specified in paragraph (2) of this subdivision, an amount of money equal to the amount of such excess.(b) Less than $20 of Tips. Notwithstanding the provisions of subdivision (a) of this regulation, if an employee furnishes to his or her employer a written statement: (1) Covering a period of less than one month, and(2) The statement is furnished to the employer prior to the close of the 10th day of the month following the month in which the tips were actually received by the employee, and(3) The aggregate amount of tips reported in the statement and in all other statements previously furnished by the employee covering periods within the same month is less than $20, and such statements, collectively, do not cover the entire month, the employer may deduct amounts equivalent to the tax on such tips from wages (exclusive of tips) which are under the control of the employer or other funds turned over by the employee to the employer.(c) Priority of Tax Collection. (1) In General. In the case of a payment of wages (exclusive of tips), the employer shall deduct or cause to be deducted in the following order: (A) The tax under Section 13020 of the code with respect to payment of wages.(B) Any tax under Section 13020 of the code which, at the time of the payment of the wages, the employer is required to collect: (i) In respect of tips reported by the employee to the employer in a written statement furnished to the employer pursuant to Section 13055 of the code, or(ii) By reason of the employer's election to make collection of the tax under Section 13020 of the code in respect of tips on an estimated basis, but which has not been collected by the employer and which cannot be deducted from funds turned over by the employee to the employer for such purpose.Cal. Code Regs. Tit. 22, §§ 4327-1
Note: Authority cited: Sections 305 and 306, Unemployment Insurance Code. Reference: Section 13027, Unemployment Insurance Code.