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New IRS guidelines could end automatic dining gratuity

RICHMOND, VA (WTVR) – The IRS has issued new guidelines that take effect starting January 1, 2014 that could end the “automatic tip” at many restaurants.

The reason? If a restaurant wants a tip to be added automatically, such as in the event of a large party, that tip must be classified a taxable wage.

Under that scenario, a server would not be able to “cash out” that tip the night of, but rather would need to wait until his or her paycheck to get the money.

Of course paychecks always take out taxes. While servers are supposed to, some never declare the tips they get after each shift.

According to the Wall Street Journal, the Olive Garden Restaurant Group is considering eliminating the “automatic tip.”

The Texas Roadhouse has already said that automatic tips will be gone starting in 2014.

While many customers at area restaurants are pleased, some servers are not.

Rachelle Carter, a long time area server, said if restaurants get rid of the “automatic tip” it could dissuade servers from wanting to take on large party groups – where tipping can be weak.

Currently servers are paid $2.13 an hour with tipping anticipated, bringing their salary well above minimum wage in many cases.

“It is kinda like a smack in the face for somebody who has worked really hard to keep this party happy and then they get slapped $5,” Carter said.

15 comments

  • MLee

    Pay minimum wage, record tips on receipts and tax them, end of story. Still better service, sometimes bigger tip, sometimes less. That’s why it’s called a tip. I had to pay a tax earning that dollar, so should anyone who receives it for services rendered. Tips may drop as prices go up to cover minimum wage, but that is offset by minimum wage. In the end it basically evens out. The current system is a Government approved shadow economy.

  • Nivasi

    I used to waitress and had the 20 person table leave me $5 at the end of the evening…. A lot of servers pocket the cash and only declare the Debit/CC tip they’re forced to. It was the only way to make a living and 99% of us lived Well Well below the poverty line. Thank God I only had to waitress during college to make ends meet. But many people are stuck in those jobs. I say we do this…. Tax the rich at 40%, lower the taxes of the middle class and poor to rich levels (15%) and raise the minimum wage to $15 an hour across the board. Make it illegal to pay waitstaff below minimum wage. Then we can do what at lot of Europe does and not tip at all. Then you can keep your tip money, MLee, continuing to be an ungrateful miser, and Manalishi can continue to blame everyone but ourselves for letting ignorance like this happen

    • johngbecker24@gmail.com

      Tax the rich 25% more than anyone else just because they’re rich? So that should mean that their votes count more and they should get the majority of the say because they’re paying for most of it. You know, waiters and waitresses accept their jobs that pay below minimum wage. I have quite a few friends that work as waiters and waitresses, they pay taxes on their tips, and don’t complain like I’m sure you did when you were a waitress.

    • scars

      I feel for servers and I know that their job is tough, but the tipping system is ridiculous. It is a way for people to avoid paying taxes. Period. At the expense of the consumer, I might add. When you take the order, bring the food, etc. — you are doing a job. You aren’t doing optional tasks (in most instances). Tipping allows the restaurant to keep the prices artificially lowered and avoid taxes while paying practically slave wages. That is simply unfair. I would rather pay the higher price and not tip. I mean, I already do pay a tip every time, so a higher price would change nothing for me. And it would be more fair to the servers because they wouldn’t be penalized for large groups or cheapskate diners or slow nights. I’m not sure why servers wouldn’t support this unless the are making much more money tax free than what they want you to believe. I mean, if they are getting $2.13 and hour and they’d need to raise the minimum wage to $15 to make up for lost tips — they are doing pretty well. And I’m not a bad tipper. I’m not a great tipper, because I can’t afford to be — but I always tip at least 20%, sometimes more if the server is great. I just wish we’d do away with the system of tipping altogether because it is getting out of hand and not just in the restaurant business.

      • rockstar

        Well I had been in this restaurant business for a long time and it is quite incorrect to say servers are not charged taxes on tip. Because every tip is recorded in pen and paper until it is given in cash which the server lawfully is obliged to declare, It is the onus of the proprietor doing the payroll to account the gratuities of each server correctly. Hence I dont know why IRS is just creating a confusion like this and hampering the system already in place, Plus auto grats are added and should be added to large parties as the amt of work is equivalent to taking 5 tables together at once.

  • chesa

    It shouldn’t really be a big deal to those who have lawfully been reporting their tips and paying taxes on those tips.

    Regardless, a tip is a tip. Customers should not be forced to pick up the tab for the restaurants who pay low wages. A tip should reflect the service they received and automatically adding a certain tip amount does not do that.

    I think the real issue here is the restaurants. They should be required to pay taxes on that money and they should be responsible for paying their employees a decent wage.

  • apryl

    I have been a waitress in the past,and know those folks work hard,and do deserve a tip! I have however had horrible waiters,waitress’ and have not left as good a tip,had they not had an attitude,and that’s what it was! If you’re employers are not paying you enough,and I do know that they are not,then,just keep working ,until you find a better job,thats what I did,and I did eventually get a better job. Please consider the person whom you are waiting on ,they are not the ones to blame,for the situation,and most of us do leave good tips for good waitress’,waiters.Some of us,have been there,and do know what you are experiencing,I sure do. Smile,be polite,serve the way you’d like to be tipped . You will have those who do not tip well no matter what,shame on them!

  • Used to be a teacher

    The Hippodrome in the City of Richmond has an automatic tip of 15% for everyones bill. Glad this is coming.

  • Aaron

    A lot of people don’t realize that even with the tips that are automatically added if you want to you can refuse the tip. Under normal circumstances I would never do so but if the service was extremely bad I would.

  • Michelle

    The argument on if a customer should be required to pay a tip or not is completely different than the issue here. the IRS doesn’t care about the “quality of service” or the “right of the customer”, they just want income to be taxed.

    I am a bartender and manager, so I see both sides to the argument. These days most restaurants use a POS system instead of handwritten checks, so auto-grats are recorded and required to be taxed anyway. In the past all servers in our restaurant were required to report auto-grats, cash or credit because it is entered into a computer. The IRS is out to get those restaurants that do all their paperwork by hand, and I think that is fine.

    But the way they went about it, mandating all restaurants, those of us that have been following the rules all along have to do more work on the manager’s part to separate their regular tips and their auto gratuities (trust me when I say it gets complicated when each night you have 10 servers each with 1-3 auto-grats mixed in with dozens of other regular tips). Managers and owners are not going to volunteer to do more work just so servers can keep the auto-grat option. No skin off their back to simply get rid of it all together and keep their job nice and easy.

    Servers who are paid $2.13 and hour (generally less than $20 a shift), now have to completely rely on the kindness of the single person paying for a group of 15-20, sometimes their only table the entire night. The service could be amazing, but maybe that person just simply can’t do math, or had too much to drink, or doesn’t realize their server is paid so little.

    It is unfair to the servers, and I agree unfair to the customers to mandate an auto gratuity if their service is poor. In our restaurant we never auto-grat tables that have had problems with their meal or service, and if a customer ever complains we are happy to remove it.

    Ultimately it comes down to the State or Dept of Labor to increase minimum wage, because restaurant owners aren’t going to do it without being required to. Until then, we (servers/bartenders) will always rely on tips, and cannot afford to work potentially for free if the person paying doesn’t pay attention. With the IRS requiring owners/managers to do extra work of categorizing tips, they are instead simply giving restaurants the easy out by removing autograts, which ultimately hurts servers who don’t have any control over their hourly wage, or what what someone tips.

    • Dee

      Tips are a server’s livelihood. Do you know how many large parties are going to start taking advantage of that? Parties of 6 or more were auto grat. because without it sometimes waiters would get stiffed and its not because they did an awful job. Some people can just be cheap. I say if you can’t tip the waiter then take it to go. I have friends who are waiters and I hear these stories quite a bit.

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