New IRS Guidelines on Service Charges & Tips
Recently, the IRS has published guidance that several types of service charge “add-ons” will not be considered a reportable tip by the server/employee but rather will considered “non-tip” revenue to the establishment (i.e. service charge revenue) and will paid by the establishment to the server/employee as a W-2 wage. Examples of these items are:
- a “large party charge” at a restaurant (i.e. if a service charge is assessed to a table of 8 people or more);
- a bottle service “uncorking charge”;
- a room service charge;
- contracted luggage assistance charge; and
- mandated delivery charge fee (i.e. take-out food delivery charge).
The amount charged by the establishment for these types of fees will no long be considered a tip (which would be reported voluntarily by the server or worker). Starting in 2014, these types of charges will be considered wages and accounted for by the establishment and paid out by the establishment to the service worker as wages.
Click here to read the IRS document, Topic 761 – Tips – Withholding and Reporting, which will help to explain this new procedure. We are here to answer any questions you may have and to assist you in understanding and complying with the new guidelines.
Thank you for your consideration of this information.