... it's taxed like regular wages.
Attention: All Servers, bartenders, waiters/waitresses, owners and bar & restaurant accountants.
Did you know? As of January 1, 2014 the IRS will classify automatic gratuities as taxable service charges, just like regular wages, and are subject to payroll tax withholding.
It’s a huge new years resolution for the IRS affecting tens of thousands of people in the service industry.
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In the past, many places, usually restaurants, would automatically add a tip or gratuity to a bill with 6-8 people or more. Usually the gratuity added would be from 15% - 18%.
Well, experience tells us that the bigger the group is on one tab or check….
A) The more challenging a table will be
B) The more likely is is that the overall tip will be lower
Lot’s of reasons.
- People don’t pay as much attention
- There is often confusion of how much a particular person or couple actually owe
- Possibly the math gets added up incorrectly because the person adding it is the most intoxicated
- Some people just forget to pay etc. etc.
The IRS used to leave it up to the employee that was tipped to declare the money.
Starting on Jan 1, the establishment has to withhold those tips until payday so the waiter or bartender won’t get those tips that shift.
That’s not all. Restaurants have to withhold Medicare taxes, Social Security and federal income also.
Just to be accurate, this isn’t exactly new “news”. The IRS rolled out this rule June of 2012 but decided they needed to give the service industry enough time to make changes & comply properly.
Time is up.
What do you think about the change?
Good or bad for servers?
Good or bad for employers?
Good or bad for customers?
How is it going to effect you and your co-workers?
Do You Have Any Stories?
Post Your Comments Below.
Update: I have written a follow-up post to this post and you can read it here.
Thank you :)
Scott Young - Founder of:
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