New IRS Rule May Change Restaurant Tipping in 2014

Many restaurants may look to avoid the added paperwork

By Christopher Freeburn, InvestorPlace Writer

With the dawn of the new year, the IRS will begin to enforce a rule change that promises to roil the restaurant industry.

Source: Flickr

Under the ruling, automatic tips added to restaurant bills for large groups of diners will be classed as service charges. That means that restaurant operators will be forced to report automatic tipping as part of server pay, the Christian Science Monitor notes.

At least one expert says that most restaurants are more likely to drop automatic tipping rather than deal with the additional paperwork involved in reporting the tips. The rule was adopted by the IRS in June 2012, but didn’t take effect until this year.

While many consumers have long objected to automatic tipping, food servers, who typically have very low salaries, say that automatic tipping is a vital way to keep their income up. At least one sever told the Monitor that without automatic tipping, many large groups would not tip “as well as they should.”

The automatic tipping rule change is likely to force restaurant owners to explore new ways to encouraging voluntary tipping among large parties.

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