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IRS Changes Rule On Tips.....

MMC

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IRS Rule Leads Restaurants to Rethink Automatic Tips
Gratuities Added for Large Groups Will Be Taxed as Service Charges




An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully.

Darden Restaurants Inc., owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.

The change comes amid increasing costs and record-keeping requirements for restaurants. In January, restaurants with 50 or more full-time workers will be required to offer health coverage to employees working 30 or more hours a week, though penalties don't begin until 2015.

Restaurants adopted automatic gratuities to help ensure that their servers—whose tips supplement a salary that is often less than the federal minimum wage of $7.25 an hour—weren't stiffed on large tabs. But many servers are likely to support dropping the practice because they don't like the idea of their tips being treated as wages, which requires upfront withholding of federal taxes, and means they won't see that tip money until payday.

IRS Rule Leads Restaurants to Rethink Automatic Tips - Yahoo! Finance

Well this change comes under the Obama Administration and was brought on 2012. What do you think about this new IRS change? Won't this affect lower wage earners and entry level people? The Poor and that so called made up Middle Class? Thoughts upon the Matter.
 

GottaGo

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Ouch.

This is going to hurt a lot of waitpeople and bar tenders.
 

MaggieD

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IRS Rule Leads Restaurants to Rethink Automatic Tips
Gratuities Added for Large Groups Will Be Taxed as Service Charges




An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully.

Darden Restaurants Inc., owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.

The change comes amid increasing costs and record-keeping requirements for restaurants. In January, restaurants with 50 or more full-time workers will be required to offer health coverage to employees working 30 or more hours a week, though penalties don't begin until 2015.

Restaurants adopted automatic gratuities to help ensure that their servers—whose tips supplement a salary that is often less than the federal minimum wage of $7.25 an hour—weren't stiffed on large tabs. But many servers are likely to support dropping the practice because they don't like the idea of their tips being treated as wages, which requires upfront withholding of federal taxes, and means they won't see that tip money until payday.

IRS Rule Leads Restaurants to Rethink Automatic Tips - Yahoo! Finance

Well this change comes under the Obama Administration and was brought on 2012. What do you think about this new IRS change? Won't this affect lower wage earners and entry level people? The Poor and that so called made up Middle Class? Thoughts upon the Matter.
I'd always just assumed that tips with a paper trail are treated in this way. *shrug*
 

MMC

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Ouch.

This is going to hurt a lot of waitpeople and bar tenders.
Mornin GG.
Taking more money from those that barely make any.....I thought Obama said he was going with whats Fair? That it was the 1%ers that were taking all the money. Looks like Obama got his Hand into another till.....huh?
 

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Mornin GG.
Taking more money from those that barely make any.....I thought Obama said he was going with whats Fair? That it was the 1%ers that were taking all the money. Looks like Obama got his Hand into another till.....huh?
Why is it unfair for waitstaff to be taxed on their earnings like everyone else?
 

MMC

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I'd always just assumed that tips with a paper trail are treated in this way. *shrug*
Mornin Maggie :2wave: .....but like with all Washington Rules and Policies, it starts here first. Then they will go after the others. Obama is desperate to make Obamacare work. Having to rely on all those young people......just to get the money. Looks like he is starting to have doubts and needs to find ways to bring in more money.
 

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Sounds reasonable. If the "tip" is mandatory then so should be the reporting of it.
 

MaggieD

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Mornin Maggie :2wave: .....but like with all Washington Rules and Policies, it starts here first. Then they will go after the others. Obama is desperate to make Obamacare work. Having to rely on all those young people......just to get the money. Looks like he is starting to have doubts and needs to find ways to bring in more money.
First, to think that President Obama had anything to do with this is just silly.

Second, I'll repeat, what's unfair about it? It should have been that way all along.
 

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Why is it unfair for waitstaff to be taxed on their earnings like everyone else?
How would it be fair now......if they go only after those that have some sort of gratuity and not go after others who are in the same field of work. Also they are already getting taxed on their earnings.

Do you think they should have to be taxed on both?
 

MMC

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First, to think that President Obama had anything to do with this is just silly.

Second, I'll repeat, what's unfair about it? It should have been that way all along.
Try again Maggie....when was the Rule Change and when was it implemented? Who's Administration hired more IRS workers and created more regualtions?

Now how is not connected to Obama?

So much for that garbage on silliness.
 

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How would it be fair now......if they go only after those that have some sort of gratuity and not go after others who are in the same field of work. Also they are already getting taxed on their earnings.

Do you think they should have to be taxed on both?
I think they should be taxed on their earned income. Tips are earned income. I don't see why they should be exempt. People are always waxing on about loopholes -- then when the government closes one, we get all indignant about it?

I fail to see a problem here. I see a solution. Waitstaff in high-end restaurants make a bundle of money. But, for most of them, they're in the 47-48% who pay no income tax at all. If they're now finally paying into SS and Medicare more fairly, I sure don't have a problem with it.
 

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Try again Maggie....when was the Rule Change and when was it implemented? Who's Administration hired more IRS workers and created more regualtions?

Now how is not connected to Obama?

So much for that garbage on silliness.
:rofl -- WTF? I disagree with you on this issue and it's "garbage on silliness"?

IF Obama had something to do with this (and other loopholes) being closed, we should thank him.
 

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Individual tax rates for tips are different than the rates when the employer takes out the tips and has to show them as payroll income. Plus, if the employer is required to report it as income for the employee, the employer has the additional expense of employer share for FICA, plus SUTA and FUTA, as well as other expenses such as higher Workers Comp and GL rates which are based on total payroll.

The employees get hosed because the large party may not tip as much as the automatic amount added, and the employers have another hidden tax increase which may reduce the funds that could be used to hire more employees.

That's the problem with it. Not that the employee will have to pay taxes on the tips, which they are supposed to do anyway.
 

MMC

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:rofl -- WTF? I disagree with you on this issue and it's "garbage on silliness"?

IF Obama had something to do with this (and other loopholes) being closed, we should thank him.
Yes it garbage to use the term silliness. How can you state that it isn't part of his policy? When the Implementation of said was brought about thru him and the IRS and not Congress? Moreover we know that it didn't get implemented under Bush? So now.....who did you want to state that it falls under?
 

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Yes it garbage to use the term silliness. How can you state that it isn't part of his policy? When the Implementation of said was brought about thru him and the IRS and not Congress? Moreover we know that it didn't get implemented under Bush? So now.....who did you want to state that it falls under?
Under Obama's presidency, a tax code loophole for waitstaff was somewhat tightened. I'll buy that. I just don't think there's any "blame" to pass along.
 

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Individual tax rates for tips are different than the rates when the employer takes out the tips and has to show them as payroll income. Plus, if the employer is required to report it as income for the employee, the employer has the additional expense of employer share for FICA, plus SUTA and FUTA, as well as other expenses such as higher Workers Comp and GL rates which are based on total payroll.

The employees get hosed because the large party may not tip as much as the automatic amount added, and the employers have another hidden tax increase which may reduce the funds that could be used to hire more employees.

That's the problem with it. Not that the employee will have to pay taxes on the tips, which they are supposed to do anyway.
Would you explain "the problem with it" another way? I don't understand what you're saying here.
 

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The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully.
Ouch.This is going to hurt a lot of waitpeople and bar tenders.
I'd always just assumed that tips with a paper trail are treated in this way. *shrug*
I think that MaggieD is right on this one. Automatic gratuities are already claimed fully by servers et al because they are a part of the bill rather than having to be manually entered by a server. Credit card/bank card tips are most likely also entered via computer and are thus claimed in their entirety.

I suspect that the decline of cash over plastic has made it less possible for servers to under report their tips.
 

Simon W. Moon

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How would it be fair now......if they go only after those that have some sort of gratuity and not go after others who are in the same field of work. Also they are already getting taxed on their earnings.
Do you think they should have to be taxed on both?
I think you have mis-understood how the IRS rule affects servers et al. Not really your fault, the journalist who wrote the article has mis-represented the actual situation which has already been in place in re automatic gratuities which are applied to bills.
Pretty sure that the way the accounting works in a restaurant that servers have never had a way to under report an automatic gratuity.
Also sure that servers have always been required by law to report all of their tips.

The only thing which is changing is that instead of being classified as tips, these will now be classified as wages. The people who are facing an actual change are the people who do the bookkeeping for restaurants, not the servers themselves.

Again, I blame the author of the article for creating a false impression that servers had previously been able to under report automatic gratuities.
 

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Under Obama's presidency, a tax code loophole for waitstaff was somewhat tightened. I'll buy that. I just don't think there's any "blame" to pass along.
Well.....blame doesn't change the facts. I brought it up that way as it is under his Administration. Which we have been told of all the regulations that are being implemented. That more would be coming thru the IRS.

Also I was looking at his statements on fairness and equality especially when it comes to that Class warfare of his and the left.

Course I was going with they should be paying their taxes anyways.

Also what about Caterers who may get tipped and have over 50 people working for them. Don't they charge Gratuity?
 
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Yet another reason to:

-reform the tax code
-get rid of minimum wage
-change our culture of tipping

I cant imagine anyone but waiters think forcing someone to tip is a good idea. Luckily, with private business I can simply not visit their restauraunt.
 

MMC

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I think that MaggieD is right on this one. Automatic gratuities are already claimed fully by servers et al because they are a part of the bill rather than having to be manually entered by a server. Credit card/bank card tips are most likely also entered via computer and are thus claimed in their entirety.

I suspect that the decline of cash over plastic has made it less possible for servers to under report their tips.

Heya Simon. :2wave: Yeah I think the Computer has helped to make them more accountable.

Its not like I don't think they should have to pay their fair share of taxes.

Still isn't this targeting one of the lowest paying jobs in the Country?
 

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Yet another reason to:

-reform the tax code
-get rid of minimum wage
-change our culture of tipping

I cant imagine anyone but waiters think forcing someone to tip is a good idea. Luckily, with private business I can simply not visit their restauraunt.
In lower-end restaurants, wait staff gets stiffed by parties of SIX a lot of the time, much less parties of eight or more. If some one person isn't taking control of a large check that's split many ways, the math is usually wrong to the low side. And, heaven forbid, someone says, "Let's all just leave our tips separate." Then waitstaff gets stiffied worse. Ha!

Have you ever seen what a Little League team can do to a family restaurant? It ain't pretty. ;)

If you've ever eaten in a place that automatically adds 15% to the bill on behalf of their waitstaff, and noted the absolutely horrible service that happens as a result, you'd know why tipping only makes sense.
 

Simon W. Moon

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Still isn't this targeting one of the lowest paying jobs in the Country?
The only practical impact on servers is that they will have to wait 'til payday to receive the automatic gratuities. They are not losing any income.
 

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Yet another reason to:

-reform the tax code
-get rid of minimum wage
-change our culture of tipping

I cant imagine anyone but waiters think forcing someone to tip is a good idea. Luckily, with private business I can simply not visit their restauraunt.
Mornin J5. :2wave: Yeah I have seen others say the same thing about tipping. What do you think about this part of it?

Still, the ruling has caused some confusion. Some restaurants insert an amount on the tip line and then remind guests on the check that they are free to adjust that amount up or down. Ms. Dyson, the payroll tax attorney, said that practice could come under scrutiny from the IRS. "How far can you go before the IRS says that looks like a service charge?" Ms. Dyson says.....snip~
 
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