Changes coming to how servers are tipped for big parties

Servers helping big groups in restaurants can almost always depend on a big tip at the end of the meal, but the way those tips are handled will be changing in a few days.

According to Michael Devine, IRS Media Relations for Illinois, Internal Revenue Service examiners will begin applying new guidance for returns filed after 2013. Currently, automatic gratuities, such as an 18% tip for a party of 8, are considered tips and it is up to servers to report them as income. Starting in January, the IRS will classify those gratuities as taxable service charges.  This means the service charges will be treated as wages and taxed.

A June 24, 2012 Internal Revenue Bulletin, worked to explain why the automatic gratuities are considered service charges.

According to the bulletin, the following criteria need to be met to considered a tip: 1) the payment must be made free from compulsion; 2) the customer must have the unrestricted right to determine the amount; 3) the payment should not be the subject or negotiation or dictated by employer policy; and 4) generally, the customer has the right to determine who received the payments.

The changes are concerning to some in the restaurant business.

“I look at the calendar and I look to see if I have any big parties to budget. Oh, well I can spend this much on this or I’m gonna have a big party so I’ll be able to pay this bill then,” said Brittany Bisby, a server at Clint’s Pizza.

Customers at Clint’s Pizza thought the changes were unnecessary.

“I have a couple good friends that serve for a living and I know that they count on sometimes that day and I don’t think any other amount should be taken out of it,” said Lindsay Johnson.

Because of the changes, some restaurants, including Red Lobster will be ending their automatic gratuity policies starting January 6, 2014.

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