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IRS Cracking Down On TIPS Earned Through Service Charges
Effective January 1, 2014. The IRS and the Obama administration heading into the 2014 elections have found a cash cow to make an example of. The Government now wants a piece of those TIPS earned by waiters and waitresses from "Service Charges"!! (Usually tacked on for parties of 6 or 8 people.)
Effective January 1, restaurants will be required to take tax withholding's from the tips diners leave when restaurants apply an automatic gratuity to a bill. Under the IRS’ revised Ruling 2012-18 they are making a hard distinction between "Tips" and "Service Charges". Under the legal definition "Tips" must be optional, a "Service Charge" is not optional.
According to Joseph Henchman, vice president of legal and state projects at Washington, D.C.-based think tank Tax Foundation, said that “in order for it to be a tip, it has to be voluntary; it has to be entirely set by the customer; it has to be the subject of something the customer comes up and not dictated by a policy; and the customer has to decided who gets the tip.”
For the IRS, who already are grabbing a piece off diner checks paid by credit card, but this just isn't enough. (Yes they do that too already, in case you didn't know.)
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