Restaurants rethinking automatic tip for large parties
By Julie Jargon, Wall Street Journal
An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.
Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.
The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don’t always report them fully.
Darden Restaurants Inc., owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18 percent tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.
The chain in July stopped automatic tips at 100 restaurants in four cities, where it is testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15 percent, 18 percent or 20 percent tip on all bills, regardless of party size. Diners can opt to tip more or less than the suggested amounts, or to not tip. Depending on how patrons react and how well the new software system works, Darden may switch to such suggested tips at all of its restaurants. A spokesman said the company will decide by year-end.
Managing salary withholding is a simple calculation. Trying to figure our which employee received a tip which increases their income, and therefore their withholding, seems to be difficult for the restaurant.
I can see why they don’t want to get in the middle of the IRS’s attempt to capture the unreported income of many employees.
Every one else does their best to avoid paying taxes. Service workers should be taxed on ACTUAL wages earned, not government estimates on what they earned from gross receipts. (We all know people tip differently and in this economy, a large tip can be an extravagance that can be cut back on.) Service workers should be allowed to ahem “fudge” the wage amounts at the end of the year such as many others do. Yea, yea, I realize that individuals on fixed government or large corporations do not have this ability, they fudge on their taxes in other places rather than wages earned. The service worker gets very little in wages OR benefits. Let them be. I do not need a law, lots of government intervention or other such nonsense, yet I can find plenty of ways to avoid paying a higher tax (same on you rich guy for saying I am Cheating, can you honestly justify yours, ye who can most afford it?)
Nanny government continues to grow!