IRS to Start Taxing Automatic Tips for Waiters

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September 25, 2013 — 2,234 views  
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For many years now, waiters have earned their livings through minimum wages and tips from the customers that they serve. It was due to their unending smiles and cheerful dispositions that tips are considered as a social obligation in most places. This has led to many waiters and waitresses earning enough money to sponsor their education and help their families.

After many years of picking up tips from customers, there was a policy that was put in to the system that automatically calculated the tips that waiters are supposed to accrue from their customers. This made it easier for waiters to earn a diminutive amount for a hard day's work. However, the tables are being turned on the waiters as the IRS (Internal Revenue System) has decided that it will consider tips from waiters as a taxable income.

Big Hit to Waiters and Busboys

This policy will make it more difficult for waiters and busboys to earn a little more than the minimum wage. Many of the waiters and busboys of restaurants in the United States put in long hours and have to deal with condescending and egotistical customers on a daily basis. Getting tips from the customers is thing that helps them provide their service with a smile. With this new tax rule, that smile is most likely going to be wiped away as their only incentive to work hard will be reclaimed by the government. This policy will not only affect the waiters and busboys but it will also affect the restaurant at large as they will have to pay more tax costs.

What Policy is all About

From January onwards, the IRS will classify the automatic gratuities as a service charge, which are actually treated as a regular wage and is subject to payroll tax withholding, instead of a tip. This means that there will be a lot more paperwork and extra costs that will be borne by the restaurants, which will inevitably hit the waitresses and waiters who survive on their tips. The tax will be charged on the automatic tips that are charged on groups of more than 8 people at the restaurant. These tips generally vary from 15% to 20% of the bill amount.

Reactions to the Policy

Darden Restaurants, which is the owner of the Red Lobster, the Olive Garden and the LongHorn Steakhouse have included their automatic tips for many years now but has slowly started to remove the system completely with the release of the new policy. The restaurant chain has removed the automatic tips from 100 restaurants that are spread over four cities and is testing a brand new system that has a suggested tip amount in the bill.

The people who are dining have the option to pay more or less than the suggested amount. The diners are also not obligated to pay a tip. This new policy will make a calculation of the payroll more complicated and confusing for the restaurants who are sticking to the automatic tips as it will require a daily monitoring of large parties that are being served.

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