New IRS gratuity law impacts many restaurants - wave3.com-Louisville News, Weather & Sports

New IRS gratuity law impacts several restaurants

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As of January 1, 2014 the IRS considers automatic tips a service charge so the gratuities are subject to payroll tax withholding. As of January 1, 2014 the IRS considers automatic tips a service charge so the gratuities are subject to payroll tax withholding.
Many restaurants like Bristol are opting out of the automatic tip and leaving it up to the customer. Many restaurants like Bristol are opting out of the automatic tip and leaving it up to the customer.
James Schmuckie James Schmuckie

LOUISVILLE, KY (WAVE) – While going out to eat with a larger group many people have become accustom to the fact an automatic tip may be added. Now a new IRS law could put a stop to that, which can be concerning to those in the service industry.

As of January 1, 2014 the IRS considers automatic tips a service charge so the gratuities are subject to payroll tax withholding. What this means is the servers won't get that money until their next paycheck, when they are used to getting it right away.

Go to any Bristol location in Louisville or southern Indiana and they will be happy to seat your large group or host a private event. James Schmuckie, the manager at the Bristol in Jeffersonville, said, "Any large party that called we could ask 'Would you like us to add 18 percent on that' we normally do that for large parties, it's up to their discretion of course, but 99 percent of the time they say yes, now we can't even ask."

"They are just going to have to change their lifestyle now," said Schmuckie.

Many restaurants like Bristol are opting out of the automatic tip and leaving it up to the customer. This could be a gamble on the wait staff's bottom line, which defeats the main purpose why many restaurants started this policy in the first place.

"I mean the servers might make less money," said Schmuckie. He adds most aren't too concerned.

Darden restaurants, the company that owns Olive Garden, LongHorn Steakhouse and Red Lobster, has already done away with required tips at 100 restaurants in four cities.

Servers who normally make about $2.15 an hour are already required to report cash tips at the end of each shift.

"I mean, I see what they are trying to do It's not like they are being unfair, but I think the servers aren't stealing a bunch of money. I think they are kind of making a mountain out of a mole hill really," said Schmuckie.

Darden Restaurants told the Wall Street Journal it plans to start putting suggested tips amounts of 15 percent, 18 percent or 20 percent on all bills, but leaving the tip line blank.

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