The old tip reporting guidelines prior to July 6, 2006
The workers in the field of the restaurant hospitality are subjected to the requirements of the internal reporting services (IRS). IRS has the power to make estimation on the tips acknowledged to or received by the employees and thus it facilitates to charge income taxes on such receipts. Tips received by the employees are considered as part of gratuity and not as gifts. It is considered while calculating the taxable income payable by the employees.
As per the requirements of the law, the tips received by or accountable to the employee in cash form should be shown in a written statement and it should be furnished before the employer within a specified time limit. In case of large food and beverage firms, (employing more than 10 individuals), tip income of the employees should be reported to the government while filing of annual information returns. 8% of the gross receipts of a restaurant business are attributed to the tip income. In case of tips reported by the employees, large employers are required to allocate 8% of the gross receipts for a period.
Tip reporting system is established with the intention to augment the tax compliance of the employees who getting tips from the customers. The TRD/EP gives power to the employers to enter into anyone of the two types of agreements relating to tip reporting which includes TRDA and TRAC. “Current law provides a unique tax credit equal to an employer’s FICA tax obligation (7.65 percent) attributable to certain tips treated as paid by the employer for FICA tax purposes (regardless of whether the tips are reported). The credit is available only on “tips received from customers in connection with the providing, delivering or serving of food or beverages for consumption if the tipping of employees receiving such tips is customary.” (Know Your Tip Reporting Rights).
New attributed tip income program
Tip means a tiny portion of money left for a bartender, waiter or other servants as a token of appreciation. Attributed tip income program (ATIP) is recognized by Internal Revenue Service. The ATIP is a three year direct program for food and beverage employers. In this case the employers’ payment is of annually. Attributed Tip is related with earnings. The earnings are calculated under full amount of tip for all tipped employees in the activity. Calculation of total tip amount for the organization is done by multiplying the total receipts from food and beverages sales by the stimulating tip rate. The other benefit of attributed tip income program is attribution technique. The ATIP was established in the year July 28, 2006. The program is based in the food and beverages industry and it provides a deliberate tip income reporting by the tipped employee. The attributed Tip Income Program provides so many advantages for the employer and tipped employee. They are avoiding financial problem due to the spontaneous tax liabilities resulting from tip audits. It develops correct tip reporting on the basis of income tax returns. It gives security to the employee and employer against the tip audit. It reduces the enrolment process.
“If the employer has already filed Form 8027 without electing ATIP participation, but now desires to participate, the employer should file a duplicate Form 8027 before June 30, 2007, electing to participate in the ATIP with a notation “Duplicate Filing to Elect ATIP Participation” prominently displayed on the Form.” (IRS Extends Attributed Tip Income Program Deadline to June 30)
The main objective of tip reporting program is to develop and make sure that there is compliance by employers and employees with legal requirements relating to tip revenue. Considering other tip reporting programs the attributed tip reporting income program is controlled and participated by employer and employee.
The two methods differentiated in the following ways
The two methods differ in terms of calculation of the taxable tip income. As per the old reporting system, the employees are required to prepare and present statements on the tip amounts received by them within a specific time period. In the Attributed Tip reporting program, the earnings are calculated under full amount of tip for all tipped employees in the activity. Calculation of total tip amount for the organization is done by multiplying the total receipts from food and beverages sales by the stimulating tip rate. The IRS has auditing power under the old tip reporting system whereas in the new tip reporting program, the employers are free from tip audit.
Why do you think the IRS is changing its tip reporting method?
“The IRS has not consistently monitored establishments in the food and beverage and cosmetology industries that have entered into tip agreements since FY 2000 to determine if the secured agreements actually increased tip income for these establishments..” ( Semi Annual report to Congress).
Internal Reporting Service (IRS) has made enhancements in the tip program in order to meet the additional requirements in the tip reporting rules. The tax assessments in the food and beverage industry are considering the tip agreements of employers. Adequate staffing is ensured by IRS for monitoring the tip agreements of the food and beverage operations.
IRS is changing its tip reporting method for avoiding the defaults in the existing tip reporting system. IRS tip reporting method is very serious activity faced by the owner of the restaurant. The employees are required to give taxes on their wages with tips. So the employees receive greater part of their income in the form of money tips. Employees want to get a tip report at each pay roll time. Otherwise the calculation of wages and taxes is not possible. For furnishing the details of tips there is a standard form. The new attributed tip reporting program is effective in minimizing the defaults in the old tip reporting guidelines.
Works Cited
IRS Extends Attributed Tip Income Program Deadline to June 30. Internal Revenue Service: United States Department of the Treasury. 2007. Web.
Know Your Tip Reporting Rights: The Court Decision. Restaurant Hospitality. 2009. Web.