Payroll in restaurants is already complicated. Then January hits and suddenly you’re staring at an alphabet soup of forms and deadlines: W-2s, 1099s, tip reports, payroll summaries, maybe a panicked email from your accountant.

This isn’t a legal treatise on U.S. tax law, and specifics can change by year and by jurisdiction. It is a practical operator’s guide to what these forms do, what information they need from you, and how to avoid the most common “we should have caught this months ago” headaches.

Use it with a good CPA or payroll provider, not instead of one.

W-2s: the story of your employees’ year

W-2s go to people who are on your payroll as employees. That includes servers, bartenders, cooks, dishwashers, hosts, managers, and often you, if you’re paying yourself through payroll.

Your payroll provider usually generates and files W-2s, but they can only work with clean data. Your job is to make sure:

• Everyone is set up correctly. Legal names, addresses, and Social Security numbers are accurate. New hires are in the system, and terminated employees are properly marked as inactive.
• All pay is in payroll. No side checks, cash “bonuses,” or under-the-table hours that never made it into the system. If someone worked, they should be in your payroll history.
• Year-to-date totals reconcile. Wages, reported tips, and employer taxes in your payroll reports match what hit your bank and your books.

If any of this is messy, you don’t fix it in March. You find it when you run the final payroll of the year, or in an early-January review with your payroll provider.

1099s: paying non-employees

1099 forms go to people or entities you pay who aren’t on payroll as employees, but meet certain criteria under tax rules. Think: some entertainers, freelance marketers or designers, a consultant who helped you with a project, maybe the photographer who shoots your dishes.

You don’t decide who gets a 1099 purely on vibes. The IRS and local rules define who qualifies. What you cando is make life easier by building good habits:

• Collect a W-9 up front. Any time you’re going to pay a non-employee for services, get a completed W-9 before you send the first check. That gives you their legal name, address, and Tax ID.
• Pay them consistently. Use the same vendor name in your accounting system every time, so you can easily pull total payments at year-end.
• Tag the right vendors. Ask your accountant or bookkeeper which vendor types in your system should be reviewed for 1099s each year.

Your accountant (or a robust payroll/HR platform) will usually run the final numbers and generate 1099s. Your job is to make sure the vendor list and totals are right so they aren’t guessing who got what.

If you’re using third-party delivery platforms or online ordering systems, ask your CPA how those relationships are treated for 1099/1099-K purposes. The rules and thresholds have shifted in recent years, and you want them, not you, making the call on how to report platform payouts.

Tips: the part restaurants most often get in trouble on

Tips are unique. They affect employee wages, payroll tax, and sometimes your eligibility for certain tax credits. They’re also where a lot of informal “we’ve always done it this way” practices live.

There are three big buckets to pay attention to:

1. Tip reporting by employees
   • Servers and bartenders are required to report tips to you, not just to keep them. Your POS should capture credit-card tips automatically, and you need a reliable way to record cash tips.
   • Make sure staff understand that accurate reporting protects them too: it ties to their W-2, Social Security, and future credit/loan applications.
2. How tips, service charges, and “auto-grats” are different
   • Voluntary tips from guests are treated one way for payroll and tax purposes.
   • Mandatory service charges (like a 20% “service fee” you add to all checks, or banquet fees) are treated differently. They’re usually business revenue first, not tips straight to staff, even if you share them.
   • That difference affects how you run them through payroll, whether they count toward tip credit (where applicable), and how they show up on W-2s.
3. Tip pools and sharing
   • If you pool tips across servers, bartenders, bussers, and possibly back-of-house, you need to align your structure with current law where you operate.
   • Some jurisdictions limit who can participate in a pool, especially if you’re using a lower “tipped minimum wage” or tip credit.

This is one of the most common areas where a short conversation with an HR/payroll pro or CPA saves you a lot of future pain. Bring them your actual process, not your idealized version, and say: “Is this still compliant here?”

How these pieces interact in real life

On paper, W-2s, 1099s, and tip reports are separate topics. In practice, they touch each other constantly.

Typical scenarios:

• A server’s W-2 doesn’t match their expectations because reported tips were lower than what they actually earned. That points to problems in daily tip entry or pooling records.
• You get a letter about under-reported payroll taxes because tip income wasn’t fully captured in payroll, even though it was paid out.
• A contractor is surprised by a 1099 because you never collected a W-9, paid them sporadically under slightly different names, and they forgot how much the totals added up to.

All of this feels like “forms trouble,” but it started with day-to-day systems: how you set people up, how you record payments, how you handle tips, and how disciplined you are with vendor records.

A simple annual rhythm that keeps you out of the ditch

You don’t need to become a tax expert. You do need a basic rhythm.

Once a year, ideally in December or very early January:

1. Run a payroll and tips check-up.
   Confirm that employee information is clean, that year-to-date wages and tips look right, and that your tip reporting process still matches your model (tipped wage vs full minimum, service charges, pooling).
2. Review your vendor list with a 1099 lens.
   With your accountant, identify which vendors might need 1099s, confirm you have W-9s on file, and clean up duplicate or misnamed entries.
3. Document what you actually do.
   Write a one-page summary: how employees report tips, how you handle service charges, who is in your tip pool, and how you pay non-employees. Share it with your CPA and ask, “Does anything here make you nervous for this year?”
4. Set reminders for next year.
   Add “collect W-9s before first payment” and “review tip process with managers” to your onboarding and policy checklist so you’re not reinventing this every January.

The payoff

Handled badly, W-2s, 1099s, and tip reporting are just stress, surprise bills, and awkward emails from former staff. Handled well, they become one more system you understand and manage, instead of something that happens to you.

You still want a professional doing the actual filings. But if you give them organized, accurate information and a clear picture of how your restaurant really runs, they can protect you, find efficiencies, and free you up manage your day to day business.