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Mom Confessions Mom Confessions

IRS To Count Automatic Gratuities As Wages, Not Tips

Anonymous
Posted by Anonymous
  • 20 Replies
http://www.npr.org/blogs/thetwo-way/2013/09/05/219290573/irs-to-count-automatic-gratuities-as-wages-not-tips

Gratuity included? A new IRS rule could end, or at least curtail, the practice.

The Internal Revenue Service will soon begin classifying automatic gratuities as service charges that are taxable as regular wages and subject to payroll tax withholding. Currently, they're considered tips, and it's up to the wait staff to report them as income.

The Wall Street Journal says:

"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."
The original rule technically went into effect in June 2012, but the IRS pushed back enforcement until January 2014 to allow restaurants time to comply. The rule change stipulates that a tip is defined as something given without compulsion and that a customer must have an "unrestricted right to determine the amount," according to the California Restaurant Association's website.

So, those 18 percent automatic gratuities for large parties that are common in many restaurants, such as the Darden chain-owned Olive Garden, LongHorn Steakhouse and Red Lobster, would be treated as a service charge for tax purposes.

As of July, Darden has already stopped the automatic tips at 100 restaurants in four cities, "where it is testing a new system in which [they] include three suggested tip amounts, calculating for the customer the total tip with a 15%, 18% or 20% tip on all bills, regardless of party size," the Journal says.
Posted by Anonymous on Dec. 28, 2013 at 2:27 PM
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Replies (1-10):
fstysxofthebtt
by Gold Member on Dec. 28, 2013 at 2:29 PM
Good.
CABZS
by Emerald Member on Dec. 28, 2013 at 2:31 PM
Um I've been a waitress for years and have always had to claim my tips.
Anonymous
by Anonymous on Dec. 28, 2013 at 2:31 PM

Any tip left on a credit card is automatically reported to the IRS. And just because automatic gratuity is added to the bill, doesnt mean the customer has to pay it. 

When I worked as a server, when the customer paid with a credit card we were to still charge the pre-tip amount then ask the person to put the grat in the tip part. We were not allowed to do it. 

Anonymous
by Anonymous - Original Poster on Dec. 28, 2013 at 2:33 PM
It's not about claiming them. Automatic gratuities would be taxed just like your paycheck automatically, and are supposed be withheld until you get your paycheck instead of crashing in tips at the end of the night.

Quoting CABZS: Um I've been a waitress for years and have always had to claim my tips.
Anonymous
by Anonymous on Dec. 28, 2013 at 2:34 PM

Wait...tips aren't taxed? I'm confused.

CABZS
by Emerald Member on Dec. 28, 2013 at 2:35 PM
Well I don't agree with that. My tips are claimed and taxed that should be it.

Quoting Anonymous: It's not about claiming them. Automatic gratuities would be taxed just like your paycheck automatically, and are supposed be withheld until you get your paycheck instead of crashing in tips at the end of the night.



Quoting CABZS: Um I've been a waitress for years and have always had to claim my tips.
Anonymous
by Anonymous - Original Poster on Dec. 28, 2013 at 2:37 PM
Well apparently as of Jan 1 the IRS is putting this in place. You may want to ask your employer about it :-/

Quoting CABZS: Well I don't agree with that. My tips are claimed and taxed that should be it.



Quoting Anonymous: It's not about claiming them. Automatic gratuities would be taxed just like your paycheck automatically, and are supposed be withheld until you get your paycheck instead of crashing in tips at the end of the night.





Quoting CABZS: Um I've been a waitress for years and have always had to claim my tips.
MAXnBRYCESMomma
by Silver Member on Dec. 28, 2013 at 2:38 PM
1 mom liked this
Umm, they are taxed. Servers paychecks are next to nothing because the tax for automatic gratuities and credit tips are taken out. We also have to report cash tips at tax time and pay tax on them. Tips are considered wages.

Quoting Anonymous: It's not about claiming them. Automatic gratuities would be taxed just like your paycheck automatically, and are supposed be withheld until you get your paycheck instead of crashing in tips at the end of the night.



Quoting CABZS: Um I've been a waitress for years and have always had to claim my tips.
Anonymous
by Anonymous - Original Poster on Dec. 28, 2013 at 2:39 PM
They weren't automatically. It was up to the individual to report the tips on their own.

Quoting Anonymous:

Wait...tips aren't taxed? I'm confused.

Anonymous
by Anonymous on Dec. 28, 2013 at 2:39 PM
1 mom liked this
They should. A tip should be left to the discretion of the patron. Not an automatic charge .

I agree wholeheartedly that it should be this way.

( and I have been a server in several restaurants. I always, always, ALWAYS earn my tip. )
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