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Automatic Gratuity to be Treated as Service Charge in 2014

November 06, 2013

Restaurant owners and employees will be affected by an IRS rule going into effect this coming January. The automatic gratuity charge that many restaurants add to the bill for larger parties will be treated as a service charge rather than as a tip in 2014.

Service charges are treated as regular wages subject to withholding by the employer, where as tips are reported as income by the restaurant employees receiving them. The ruling is likely to complicate bookkeeping and reporting for both restaurant employees and employers. If you have questions regarding this new rule, contact your Beene Garter representative at 616.235.5200.