IRS Changes for Automatic Gratuities

“Gratuity included” may be a thing of the past for many restaurants.  It is a common practice for a restaurant to add an 18% gratuity for parties over 6 people.  Starting in January 2014, these automatic gratuities will be treated as wages paid by the restaurant to the server and subject to payroll taxes.   According to the IRS, service charges added to a bill or fixed by the employer that the customer must pay, and are then paid to the employee, will not constitute a tip but rather non-tip wages.  A tip is something given without compulsion and in an amount determined by the customer.  So, if the restaurant tab was $200.00 and the restaurant automatically adds 18% (or $36.00), then the $36.00 will be treated as wages and the restaurant owner must collect and pay FICA and Medicare.

 

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