New IRS Rule Goes After Automatic Tips For Waiters

The Internal Revenue Service in 2014 will enforce a new rule that will require restaurants to recognize automatic gratuities added to large parties as taxable wages and not as tips.

Getty Images.

This means waiters will no longer be able to take automatic tips home with them and it could also mean the discontinuation of the automatic gratuity.

"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," Daniel Garza, executive director of the LIBRE Initiative (a right-of-center Hispanic group) said in a statement on the rule.

The rule could also lead to restaurants discontinuing the practice of adding an automatic gratuity to large parties (usually five patrons or more).

"Darden Restaurants Inc., owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% 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," the Wall Street Journal reports, citing a spokesman familiar with the situation.

Darden Restaurants has in the past attempted to cut costs by dialing back employee hours to under 30 per week so as to avoid providing health insurance coverage as mandated by the Affordable Care Act, the Washington Examiner reminds us.

“Of note, to the Feds a full-time employee works an average of just 30 hours a week, not the normally accepted 40 hours,” the Washington Examiner explains. “The IRS rule is key because companies with more than 50 full-time employees must provide health insurance under Obamacare, or be fined.”

Asked what she thinks of the new IRS tip rule, one waitress told the WSJ the following: "I don't want my tips to be on my paycheck as a wage. In this industry, that's what we live on. If I had to wait two weeks I don't know how I'd survive."

The new rule comes on the heels of the Obama White House’s oft repeated call for Congress to increase the higher federal minimum wage rate from $7.25 to $9 an hour.

--

Follow Becket Adams (@BecketAdams) on Twitter

Featured image Getty Images.

[related]