IRS To Target “Tips’ in Latest Crackdown Push

IRS To Target

( – People who work in the service industry typically receive tips from customers, which adds to their base take-home pay. Many times this dollar amount comes in the form of cash, but with the advancement of technology and the increased use of credit and debit cards, people can also tip using those means. Either way, when tax time rolls around, those employees must report those tips as income to the IRS. The burden of determining that amount and tracking it through the year largely falls on the taxpayer.

On February 6, the IRS and the Treasury Department released a proposal to give employers the means to report tips paid by point of sale and other electronic transactions. The Service Industry Tip Compliance Agreement (SITCA) program will be voluntary for businesses that employ workers receiving tips. According to the IRS, the measure will help relieve taxpayer and IRS administrative burdens regarding tip reporting compliance, reporting, and monitoring.

SITCA will replace three voluntary programs already in place: the Tip Rate Determination Agreement (TRDA) program, the Tip Reporting Alternative Commitment (TRAC) program, and the Employer-Designed Tip Reporting Program (EmTRAC). The newly proposed system does not increase the tax burden for employees who work for tips but is an agreement between the IRS and employers in the service industry offered to help businesses comply with the US tax law.

In exchange for participating in the program, service industry companies will receive “protection from liability” and reduced compliance reviews from the IRS. Likewise, establishments using SITCA can implement their own tip-reporting policies with their staff, as the agreement is between the employer and the IRS — not the worker.

Even if companies decide to use the program, employees who receive tips will still be responsible for keeping a proper record of their income and reporting it to the IRS at tax time.

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