In 2003, the Internal Revenue Service, the Culinary Union, and various casino managements agreed to a new tip-reporting program, in which employers withhold taxes on the estimated tips of casino service workers. The IRS introduced formulas based on workers' jobs, shifts, and other factors to estimate the amount of tips they must report for federal income purposes.
For example, wait staff in upscale restaurants are assessed more than bussers at hotel buffets. Cocktail waitresses and valet parking attendants working weekend-night shifts at center Strip megaresorts are recognized as earning more in tips than those on the graveyard shift at locals casinos. Removing the onus of record-keeping -- tracking total daily tips, tip-outs to co-workers, reporting their names and amounts, etc. -- proved so popular that an estimated 90% of Nevada’s tip-earning workers, more than 50,000 taxpayers, participate in the program today. The program is voluntary, and dissatisfied workers can withdraw at any time.
In exchange for paying taxes on estimated tips, the IRS "promised" not to audit participants. Thousands were audited in 2006 anyway; in response to the uproar, Revenue improved its method of matching the wide-ranging year-end tip data supplied by the casinos with what tip-earners reported on their tax returns. However, only a few months later, the IRS demanded employers withhold more money from the tip-earners paychecks, due to the booming economy and record revenues of the casinos. The casino companies negotiated a new three-year tip agreement with the IRS, with a three-tier increase, the first of which went into effect.
In response, the union demanded -- and received -- employer contributions to an IRS "defense fund" to aid employees who opt out of the tip-reporting program in case they’re audited.
Well, that was then and this is now. Visitor volume and casino revenues have fallen across the board, keeping pace with the tough times, in 2008. Tip income among service workers, according to Culinary spokespeople, is down fully 50% from when the feds increased the withholding tax. They claim it’s not just due to people spending less money at bars and restaurants, it’s also a reflection of the influx of European visitors taking advantage of the sinking dollar, who are unfamiliar with the country’s tipping culture in the U.S., particularly embodied by Las Vegas.
Recently, casino management met with the IRS and made a deal for the second-tier increase to be postponed, and for a 20% reduction in the amount of tip income employees have to declare. Culinary officials claim that the casinos acted unilaterally, without input from the union, which would have insisted on a bigger reduction. Management, on the other hand, insists that even a 20% decrease is a victory with the IRS.
Large numbers of participants forsaking the tip-reporting program would immediately decrease the automatic withholding taxes and require labor-intensive audits to insure accurate reporting. That’s why IRS representatives are meeting with Culinary officials and conducting seminars for the rank-and-file service workers on how to keep records on their tip income.
