1 of 2
2 of 2
Starting now, the bottom of your restaurant check may look a little different. And it should be no surprise what has caused this.
Per an IRS ruling that was announced in 2012 and goes into effect this calendar year of 2014, the so-called autogratuities (a specific percentage for a specific size-or-larger group) will now be considered a "service charge" rather than a tip. Making it a service charge means that the employer must put that money into the employee's check (as wages) rather than paying it out as a tip at the end of the employee's shift.
So the employee must wait to get that money, which automatically gets taxes and things like FICA, which goes to Social Security and Medicare, taken out of it. Tips, on the other hand, are expected to be reported by employees. Taxes and such are taken out of their paycheck on the basis of what it is presumed that people tipped, a figure arrived at by seemingly mysterious means involving location of the restaurant and average check amounts.
The new ruling means more bookkeeping for employers and a delay in income for servers. Want to guess who likes this? Yup. Nobody - except the budget of these United States, which suffers immensely from tax underpayment. And that's the point of all this. Some servers - estimates vary and I'm not getting into that argument here - underreport income and avoid paying taxes on it. And so do some restaurant owners.
There's a specific definition from the Internal Revenue Service about what constitutes a tip. (You can read about it here. A little farther down are a couple of possible scenarios that are relevant, by the way.) And an autogratuity doesn't qualify. So several chains piloted those "suggested tip" slots at the bottom of bills instead of the mandatory gratuity, now identified as the dreaded service charge. And it appears that it will become a more widespread practice in the industry.
Many people when they see that line of pre-figured tips feel like it's a deliberate nudge rather than a convenience. I wouldn't be surprised if it backfired. Customers are very sensitive about tipping - thus the choice not to bring the European-style credit card readers tableside where folks don't have their credit card out of sight but have to indicate their tip when they sign on the screen. (Presumably the server isn't looking, but still, it bothers some people.)
So what would happen if, as one commenter remarked in an online forum based here in St. Louis, you paid the autogratuity but added on more money because the servers had done a particularly fine job? There are no specific IRS rules that cover that, but it certainly appears to be a tip. Much would depend on the bookkeeping system of the restaurant, though, and how that system handled it.
Underreporting isn't a new problem - back in the middle of the twentieth century, physicians seemed to do a great deal of it because they were usually paid in cash rather than by insurance companies. But there's a new push to get everyone to pay their share. Still, little guys are still statistically far less apt to get audited than individual filers with incomes greater than, say, $200,000.
The bulk of the U.S. budget comes from individual taxpayers. And if you're going to ask about corporations and their tax situation? Call your congressman - corporations get legal tax breaks. Plenty of them. But that's another story.
