Many restaurant owners say the new IRS crackdown on automatic gratuities is pushing them to ditch their policies for large parties – unwelcome news to servers across the country.
Beginning this month, the IRS is cracking down on how restaurant owners pay out automatic tips – i.e. the typical 18% charged for parties of 6 or more. Going forward, these tips must be classified as service charges that are taxable as regular wages and subject to payroll tax withholding (aka more paperwork), rather than pooled into the tip cash servers divide at the end of their shift (which has been common practice until now).
Though the policy isn’t a new one, having been issued in June 2012, the implementation was delayed until 2014 to give restaurants time to comply. And rather than deal with the paperwork involved, some restaurateurs are choosing to ditch the mandatory tip altogether.