Monday April 15, 2024
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New IRS Voluntary Tip Reporting Program
The IRS Internal Revenue Service (IRS) announced this week that it has created a proposed new voluntary tip reporting program. The IRS calls the new program the Service Industry Tip Compliance Agreement (SITCA).
The tip reporting program is designed to work together with companies that have point-of-sale systems or electronic payment settlement methods. The IRS encourages employers who have these point-of-sale systems to use the new SITCA program to facilitate the reporting of tips.
The proposed program requires participating employers to submit an annual report that shows the tips for each employee. The participation in SITCA protects employers from liability that could exist if they do not report tips. It also is a flexible option that facilitates reporting employee tips.
SITCA would replace the Tip Rate Determination Agreement (TRDA), the Tip Reporting Alternative Commitment (TRAC) or the Employer designed TRAC (EmTRAC) program.
Employers that have existing agreements with the previous programs may continue to use them until (1) they voluntarily decide to participate in the SITCA program, (2) if the IRS determines that they are not in compliance with the prior program agreement or (3) until the first full calendar year after the final SITCA program revenue procedure is published.
Editor's Note: The word "voluntary" has a special IRS meaning. If the employer decides to use the SITCA program for tip reporting, it will be required for the employees. Many restaurants, hotels and other commercial organizations now use a point-of-sale reporting system. This enables them to compensate their employees appropriately for tips that have been earned. It is a tradition to provide tips for good service, but the IRS emphasizes that these tips are included as part of taxable income.
The tip reporting program is designed to work together with companies that have point-of-sale systems or electronic payment settlement methods. The IRS encourages employers who have these point-of-sale systems to use the new SITCA program to facilitate the reporting of tips.
The proposed program requires participating employers to submit an annual report that shows the tips for each employee. The participation in SITCA protects employers from liability that could exist if they do not report tips. It also is a flexible option that facilitates reporting employee tips.
SITCA would replace the Tip Rate Determination Agreement (TRDA), the Tip Reporting Alternative Commitment (TRAC) or the Employer designed TRAC (EmTRAC) program.
Employers that have existing agreements with the previous programs may continue to use them until (1) they voluntarily decide to participate in the SITCA program, (2) if the IRS determines that they are not in compliance with the prior program agreement or (3) until the first full calendar year after the final SITCA program revenue procedure is published.
Editor's Note: The word "voluntary" has a special IRS meaning. If the employer decides to use the SITCA program for tip reporting, it will be required for the employees. Many restaurants, hotels and other commercial organizations now use a point-of-sale reporting system. This enables them to compensate their employees appropriately for tips that have been earned. It is a tradition to provide tips for good service, but the IRS emphasizes that these tips are included as part of taxable income.
Published February 10, 2023
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