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Automatic gratuities may go way of dinosaur under new IRS rule

Tipping is one of those interesting cultural things that can be hard to understand. Someone who has never worked as a wait person may be at a loss to appreciate what a hot button issue it can be. They may be equally at a loss to understand why a new rule by the Internal Revenue Service on the subject has recently made headlines. But news it is here in the Maryland and Washington, D.C., area and across the nation.

What's getting the ink is word that the IRS is set to start counting those automatic gratuities that restaurants sometimes apply to tabs for large parties as regular server wages, not tips. The move is set to take effect in January 2014.

The move is an effort by the IRS to address what it sees as a gaping hole in income reporting by waiters and waitresses. Those workers are supposed to report their tip income when filing their individual tax returns, but the suspicion is that the rule is widely ignored. But where there are taxes to be collected, there is a chance of an IRS audit.

Individuals who become targets of that kind of pressure don't have to face the stress alone. To be sure that your rights are fully protected in such circumstances, the best route to follow is to consult with an experienced tax attorney.

The new rule on automatic gratuities could end up having the unintended consequence of putting more pressure on individual servers in connection with reporting. That's because the onus of the rules means more paperwork and cost for restaurants.

A number of large restaurant companies are looking at eliminating large party gratuities, and some legal experts say they expect most restaurant owners across the country to follow that path.

How all this will eventually play out for the individual servers who face the obligation of reporting income remains to be seen.

Source:, "IRS Rule Leads Restaurants to Rethink Automatic Tips," Julie Jargon, Sept. 4, 2013

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