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.


This information does not constitute the rendering of legal, accounting or other professional services by Pete Benenati or Benenati Law Firm, PC. This information is not intended to create or provide an attorney-client relationship. Although care is taken to present the material accurately, any implied or actual warranties as to any materials herein are hereby disclaimed along with any liability with respect thereto.

Income Taxes, Risk Management , ,
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