Payroll Tax Compliance – Tips vs. Service Charge

Brother Jimmy's Union Square Grand OpeningStarting in January the IRS is changing its definition of “service charge” to include automatic gratuities.  What does that mean for payroll tax compliance?  It means that these services charges are now considered regular wages and subject to payroll tax withholding instead of standard tips that an employee has to report. This also means that these wages have to be considered when when employers calculate overtime, and hourly rates for employees could vary from day to day based on the number of large parties served where automatic gratuity is charged. For more specifics follow this link to IRS website