How the New IRS Rules Regarding Group Gratuities Could Impact Restaurants

It seems there is no refuge. The IRS will make keeping your own money a crime.

Jim Balis' Blog

For years it has been common practice for restaurants to add a fixed gratuity to parties of five or more. As of the beginning of this year, however, how restaurants handle tips for large parties is going to have to change. The IRS came out with a new ruling this year that draws a more distinct division between what are considered tips and what are considered service charges. From here on out, it will no longer be legal to require a tip and still call it a tip. If it’s a mandatory fee, it is now called a service charge, which changes how restaurants can handle payouts for bonuses.

It used to be that cash tips generally went unreported, though both tips and wages are technically taxable. Those days are mostly gone now, what with credit cards and more stringent reporting and tracking requirements. This change in what constitutes service…

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