Proper tax planning and tax preparation considerations need to be addressed by many business owners because of an IRS ruling. Effective January 1, 2014, if a business adds service charges to customers’ bills which it distributes to its employees, the amounts distributed to the employees will no longer be considered tips.
What is a “service charge” or “auto-gratuity”? By way of example, these are the automatic tip charges for large parties (used by restaurants), a bottle service charge (restaurants and night-clubs), room service charge (hotels and resorts), a contracted luggage assistance charge (hotels and resorts), or a mandated delivery charge (pizza, Chinese restaurants and other retailers).
This change is causing some restaurants to rethink the practice of adding automatic tips to the tabs of large parties. Why? Because the IRS will begin classifying those automatic gratuities [Read more…] about WHEN A TIP LEFT AT A RESTAURANT IS NOT A TIP