Press Release

New IRS Rule Targets Waiters' Tip Income

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New IRS Rule Targets Waiters' Tip Income

Costly Reporting Requirement Burdens Restaurants with Added Paperwork

(Washington, D.C.) - The Internal Revenue Service (IRS) has announced a rule change affecting restaurants nationwide. According to press reports, the new rule takes effect on January 1, 2014, and requires restaurants that automatically add tips to treat those tips as regular wages, subject to withholding. The effect will be to deny waiters the opportunity to take tips home when they are earned, and create more regulations for restaurant owners.

The rule imposes a burdensome new paperwork requirement on restaurants nationwide, many of which are small businesses. By adding these automatic gratuities into workers' pay it could cause new complications for workers whose pay rate may essentially change day to day depending on how many automatic gratuities they receive. Because of these complications, it is expected that affected businesses will change the way they function. Restaurants nationwide will likely abandon this practice, as it is costly and unattractive for employees and companies.

Daniel Garza, Executive Director of The LIBRE Initiative released the following statement:

"As the latest unemployment report brings gloomier economic news, American entrepreneurs and workers are increasingly confronting more and more government intervention through higher taxes and increased regulation. These things are connected. Regulatory interference and new taxes from Washington are making it harder and harder to generate new jobs.

In just the last year, small businesses have had to deal with higher payroll taxes, new health care regulations, taxes on health care, as well as other new regulatory burdens. Ask any small business owner and they will tell you these new burdens cut into the bottom line and make it harder to expand and hire. This new IRS rule is one more mandate to comply with and one more way to make sure the IRS extracts every possible penny out of hard-working waiters and small business people - the very folks who are suffering most in this weak economy." 

For interviews with a LIBRE representative, please contact: Judy Pino, 202-578-6424 or Brian Faughnan, 571-257-3309.