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LVA news of the day on "tipping"

forkushV
forkushV
Jan 9, 2014
12:19am
Block User
Quote
Originally posted by: jillyf
The IRS has no jurisdiction over the way a restaurant presents a bill to a customer; restaurants can write what they want, and charge what they want.
Obviously. Restaurants can still charge automatic gratuities, but they will have tax consequences and paperwork headaches if they do (according to Roulette Man's link).

Unfortunately, for those restaurants who still charge automatic gratuities, they will now have customers claiming it is illegal. These claims will be bogus.

Roulette Man
Roulette Man
Jan 9, 2014
12:34am
Block User
Quote
Originally posted by: jphelan
Quote
Originally posted by: Roulette Man
Quote
Originally posted by: jillyf
The IRS has no jurisdiction over the way a restaurant presents a bill to a customer; restaurants can write what they want, and charge what they want.


During 2012, the Internal Revenue Service issued a new ruling regarding the taxation of automatic gratuities included on the tabs of restaurant guests. The ruling is effective January 2014 and will require automatic gratuities to be classified as service charges, which are treated as regular wages by the IRS. This means the automatic tips are subject to payroll tax withholding. With this new ruling, many restaurants are experimenting with other ways of automatically charging gratuities and many are dropping the practice all together.

It is common practice for restaurants to include an automatic tip of a specified percentage to the bill of large parties to help ensure their servers are not short changed on large tabs. With the new ruling, restaurants will need to factor automatic gratuities into pay and begin withholding Federal and State taxes on the wages. This change will result in increased paperwork and administrative expenses for restaurants, in addition to various financial consequences for wait staff. Some restaurants are starting to include suggested gratuity on tabs, instead of automatically adding it into the bill, to avoid the new tax consequences. This practice still allows the customer to decide on the final tip and, therefore, has not been deemed a service charge by the IRS.

With the increased costs of healthcare reform and other items on the horizon, this is another issue to be considered by restaurants when planning for the upcoming 2014 tax year.

For more information or questions on this topic, please contact your local UHY LLP professional.


Link


This makes sense - it will help the IRS better track tips. Shouldn't there be withholding tax on all wages and tips are wages? I thought this was actually happening today when you charged your bill at a restaurant and add the tip. Why should a certain segment of the population continue to get away without reporting ALL their income while Joe and Jane W-2 pay tax on every dollar earned?


Do you understand what payroll taxes are?
jphelan
jphelan
Jan 9, 2014
2:14am
Block User
Quote
Originally posted by: Roulette Man
Quote
Originally posted by: jphelan
Quote
Originally posted by: Roulette Man
Quote
Originally posted by: jillyf
The IRS has no jurisdiction over the way a restaurant presents a bill to a customer; restaurants can write what they want, and charge what they want.


During 2012, the Internal Revenue Service issued a new ruling regarding the taxation of automatic gratuities included on the tabs of restaurant guests. The ruling is effective January 2014 and will require automatic gratuities to be classified as service charges, which are treated as regular wages by the IRS. This means the automatic tips are subject to payroll tax withholding. With this new ruling, many restaurants are experimenting with other ways of automatically charging gratuities and many are dropping the practice all together.

It is common practice for restaurants to include an automatic tip of a specified percentage to the bill of large parties to help ensure their servers are not short changed on large tabs. With the new ruling, restaurants will need to factor automatic gratuities into pay and begin withholding Federal and State taxes on the wages. This change will result in increased paperwork and administrative expenses for restaurants, in addition to various financial consequences for wait staff. Some restaurants are starting to include suggested gratuity on tabs, instead of automatically adding it into the bill, to avoid the new tax consequences. This practice still allows the customer to decide on the final tip and, therefore, has not been deemed a service charge by the IRS.

With the increased costs of healthcare reform and other items on the horizon, this is another issue to be considered by restaurants when planning for the upcoming 2014 tax year.

For more information or questions on this topic, please contact your local UHY LLP professional.


Link


This makes sense - it will help the IRS better track tips. Shouldn't there be withholding tax on all wages and tips are wages? I thought this was actually happening today when you charged your bill at a restaurant and add the tip. Why should a certain segment of the population continue to get away without reporting ALL their income while Joe and Jane W-2 pay tax on every dollar earned?


Do you understand what payroll taxes are?


Yes - I believe the topic of payroll taxes was covered when I passed the Illinois CPA exam and when I completed my MBA

I also worked in a restaurant and relied on tips as a substantial part of my income. I also understand that reporting of tips was not accurate at all and people often under-reported their tip income. The government only knew about the hourly salary paid and the tips self reported by the employee.

Hence, employees who rely on tips often underpaid on their FICA, Federal and State Income taxes. As a result, they often qualified for SNAP or Earned Income Credit when they would not otherwise be able to qualify if they fully reported income.

But that's OK ---- Joe and Jane W2 who get 100% of their income reported to the government cover it for them.

Don
Don
Jan 9, 2014
2:27am
Block User
Quote
Originally posted by: snidely333
Resort fees, 6/5 blackjack and Obama birth certificate can never be discussed enough.

What is this "Obama birth certificate" of which snidely333 writes?


jphelan
jphelan
Jan 9, 2014
3:35am
Block User
Quote
Originally posted by: DonDiego
Quote
Originally posted by: snidely333
Resort fees, 6/5 blackjack and Obama birth certificate can never be discussed enough.

What is this "Obama birth certificate" of which snidely333 writes?


See my Avatar - the doctor who signed the "birth certificate" sure has nice handwriting - at least on my President's certificate. Surely he is "special".
KarenTN
KarenTN
Jan 10, 2014
5:18am
Block User
Quote
Originally posted by: jphelan

Yes - I believe the topic of payroll taxes was covered when I passed the Illinois CPA exam and when I completed my MBA



I thought payroll taxes were the taxes that employers pay on the wages they pay to their employees? I don't recall this being covered much when I sat for my exam, but then again, I don't recall different states having their own CPA exam specific to that state, either

jillyf
jillyf
Jan 10, 2014
6:15am
Block User
Quote
Originally posted by: jillyf
The IRS has no jurisdiction over the way a restaurant presents a bill to a customer; restaurants can write what they want, and charge what they want.


Quote
Originally posted by: Roulette Man
Some restaurants are starting to include suggested gratuity on tabs, instead of automatically adding it into the bill, to avoid the new tax consequences.


The economic consequences of various tax schemes is a fascinating topic, to which many brilliant minds have devoted substantial hours.

One of the most important legacies of the Federal judiciary, one of its most important contributions to our personal freedoms, is a long line of cases in which they have held the IRS at bay when it has tried to require taxpayers to use a particular BUSINESS practice.

(And, no I won't give one example; I'll just smack down, the same way the Supreme Court would smack down the IRS if they tried to exceed their jurisdiction.)

O2bnVegas
O2bnVegas
Jan 10, 2014
6:41am
Block User
Guy goes to the store to buy some condoms.

At checkout, the clerk said "That comes to six dollars and fifty-eight cents with tax."

Guy said "Oh I don't need any tacks. I just roll them on."

jphelan
jphelan
Jan 10, 2014
7:44am
Block User
Quote
Originally posted by: KarenTN
Quote
Originally posted by: jphelan

Yes - I believe the topic of payroll taxes was covered when I passed the Illinois CPA exam and when I completed my MBA



I thought payroll taxes were the taxes that employers pay on the wages they pay to their employees? I don't recall this being covered much when I sat for my exam, but then again, I don't recall different states having their own CPA exam specific to that state, either


Karen - my response was in response to the question "do I know what payroll taxes are?" and I believe I know what they are and my background has expertise in the field.

Per your quote "payroll taxes are the taxes employers pay on wages to their employee", but payroll taxes are not withheld on most tips people receive. This is one of the most under-reported incomes in thus US - just behind drug dealers, gamblers, and prostitutes. For the record, I only claim expertise in one of those areas.

jillyf
jillyf
Jan 10, 2014
8:07am
Block User
Quote
Originally posted by: jphelan
tips people receive. This is one of the most under-reported incomes in thus US - just behind drug dealers, gamblers, and prostitutes.
Don't forget breakfast items stolen from hotels.

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