Watch CBS News

IRS Crackdown Has Some Restaurants Re-Thinking Automatic Tipping

By Hadas Kuznits

PHILADELPHIA (CBS) - The IRS will soon change the way it treats automatic gratuity. The move may cause some restaurants to stop applying automatic tips to the check for large parties.

Melissa Bova, government affairs representative for the Pennsylvania Restaurant and Lodging Association says that call is entirely up to the restaurants themselves, but when they require customers to tip, they will also be required to pay the taxes on that service charge and complete all the paperwork that that entails as well.

"They actually started doing training to do it properly.  So, it's kind of always been the regulation; the IRS wasn't really enforcing it, so they kind of drew a line in the sand, said, 'this is a tip, this is a service charge, this is how you report it.'"

Bova says the crackdown doesn't really change things.

"When a server gets tips anyway, they have to submit it and pay taxes on it as well, so really it's just saying who's going to be submitting the taxes -- the business or the server."

Reporter: "Let's be honest, they don't really (report every dollar)."

Bova: "And to be honest, that's probably why the servers aren't going to be happy with the IRS changes."

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.