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New IRS laws to impact restaurants

Restaurants in Massachusetts will be having to deal with new rules regarding the way that the Internal Revenue Service handles some tips for waiters. The IRS will now classify a number of waiters' tips as taxable income to the restaurant instead of considering them to be self-reported tips. Under this new policy, according to a recent article in the Wall Street Journal, tips that are automatically included by restaurants in the bill for large tables will now be considered taxable service charges.

One of the purposes of built-in tips for large tables is to help ensure that wait staff, who often receive less than minimum wage and depend on tips to make up the difference, make more than minimum wage. However, as a result of these new regulations , several large restaurant chains (including Olive Garden and Red Lobster) are considering removing these automatic tip programs to avoid dealing with the new taxes, which may lead to lower wages for employees of these businesses.

The new changes are expected to impact more than just the waiters at restaurants. Many other members of a restaurant staff, including bus persons, depend on a percentage of tips from waiters to help improve their earnings, which often are less than minimum wage because they are expected to be able to benefit from tip sharing.

Following IRS regulations can be costly to a business, but failing to do so can be even more expensive due to penalties and fines. An experienced tax lawyer could help owners of restaurants and other businesses by keeping them informed of new regulations and policies and by assisting them in complying with tax law, thereby avoiding potential penalties and bank account levies.

Source: Daily Caller, "New IRS policy taxes automatic tips from waiters", Patrick Howley, September 08, 2013

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