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The IRS announces new rules on restaurant tips

Many Missouri restaurants may no longer add gratuities to the checks presented to large parties after the Internal Revenue Service announced that they are changing the way these tips will be classified. Wait staff are responsible for reporting tips which are built into the bill under current wage laws, but the new rules would classify them as taxable service charges. This means that they would be subject to payroll taxes and lead to higher costs for restaurants.

Several large restaurant chains have already done away with mandatory gratuities for large parties in some of their locations as an experiment before the new rules take effect in January 2014. The new regulations will not only mean higher payroll tax payments and administrative costs for restaurants but are likely to result in lower compensation for waiters and waitresses who already struggle to earn the minimum wage.

Wait staff could also see their incomes suffer even if their employer continues to add gratuities to restaurant checks. Tips will be included in their paychecks under the new rules, and they will no longer be able to take them home with them at the end of each shift. The gratuities will also be subject to income tax and other payroll deductions. Additional costs may also lead to hiring fewer waiters and waitresses from restaurants who will not receive an income tax credit on the new service charges.

A climate of budget deficits and fiscal constraints is pushing the Internal Revenue Service to find more tax revenue in any way they can. Frequently, these measures target taxpayers least able to bear an additional tax burden. Employees who feel that they have been unfairly treated or even lost their jobs due to changing rules and regulations may consider consulting an attorney experienced in employment law. Sometimes a legal claim can be filed on behalf of an employee which could lead to reinstatement or compensation.

Source: Daily Caller, "New IRS Policy taxes automatic tips for waiters", Patrick Howley, September 08, 2013

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