New IRS policy changes how servers receive tips - FOX13 News, WHBQ FOX 13

New IRS policy changes how servers receive tips

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    Friday, October 4 2013 3:43 PM EDT2013-10-04 19:43:45 GMT
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DOWNTOWN MEMPHIS, Tenn. (FOX13) -

A new IRS policy puts restaurant servers' tips in their bi-weekly paychecks instead of their pockets at the end of the night.

The policy, which went into effect Jan. 1, treats auto-gratuity as a service charge and not a tip.

Before opening Tamp & Tap downtown, Mitch Buckner was a server back in the day "just for a few years, maybe three," he said.

So he understands why servers may not care for the new IRS policy that treats auto-gratuity as a regular wage instead of a tip.

"I guess when you're younger getting cash every night is nice; you're able to spend it on what you want right away," he said.

The new policy is one way for the IRS to use the automatic tips as a means of curbing under-reported tip income, a problem they have dealt with for years. While it's a new policy for them, turns out a few Memphis eateries have already been doing it for years.

MORE: Automatic gratuity at restaurants no longer considered `tips`

The Majestic Grille's owner Patrick Reilly said they have included automatic gratuity tips in his employees' biweekly paychecks since the restaurant opened.

"For restaurants, for instance, that pay credit card tips in the employees' paychecks, it will have no effect at all," he said, "For those that cash out employees at the end of the night it will have some effect."

Tamp and Tap also already includes tips in employee paychecks. Buckner added, "At the end of the year instead of the employees being responsible for filing those taxes and then not doing it, it could come back on us; so we take care of it up front."

Reilly said his employees and business will not see much change with the new IRS policy and neither will customers. 

"This new change has absolutely no effect on how customer pays," Reilly said. "There's no requirement with credit card; they can pay with cash."

One difference customers may notice at other area restaurants: Some are deciding to eliminate auto-gratuity from their checks. Reilly, also the president of the Memphis Restaurant Association, said that creates a sort of tax loophole.

Buckner said the new policy may actually help servers in the long-run, adding, "I've known people with issues on mortgages and loans: It's a lot harder to show a paycheck that's primarily cash tips."

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