How the IRS Tipping Crackdown Impacts Restaurants, Servers

January 6, 2014 – In The News

Carolyn Richmond was quoted in the FOXBusiness article “How the IRS Tipping Crackdown Impacts Restaurants, Servers.” While the full text can be found in the January 6, 2014, issue of FOXBusiness, a synopsis is noted below.

The IRS is cracking down on how restaurant owners pay out automatic tips. These tips must be classified as service charges that are taxable as regular wages and subject to payroll tax withholding, rather than pooled into the tip cash servers divide at the end of their shift (which has been common practice until now).

The policy was issued in June 2012, but implementation was delayed until 2014 to give restaurants time to comply. Rather than deal with the paperwork involved, some restaurateurs are choosing to ditch the mandatory tip altogether.

“I’ve counseled all of my [restaurant] clients nationally to get rid of auto-gratuity based on table size,” says Richmond. She says incorrect handling of auto-gratuities could jeopardize restaurant owners’ ability to take the tip credit, which allows owners to pay their tipped staff less than minimum wage.