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Restaurant Tipping Rules To Change In 2014

Belinda Lester, Flickr

The way customers tip at restaurants is set to undergo a major change in 2014.

Automatic tips are often added to the bill of large groups at restaurants.

A ruling from the IRS will change the way automatic tips are taxed and could lead to fewer automatic tips being added to bills at restaurants. has more:

CPA Claude Titche III, a tax partner at Beene Garter in Grand Rapids, said the IRS has determined if the customer “does not have a choice but is told they have to make a specific payment, then that is called a ‘service charge,’ and a service charge under this new revenue ruling is deemed to be compensation to the wait staff, instead of a tip. And if it’s compensation, it is supposed to be included in their W2 and have all the various withholdings taken.”

The IRS ruling was made in 2012, but will not take effect until January 1, 2014.

Automatic tips/service charges will still be allowed, but many restaurants may choose to end the practice to save on paperwork. reports on changes at Olive Garden and others:

The chain in July stopped automatic tips at 100 restaurants in four cities, where it is testing a new system in which the restaurants include three suggested tip amounts, calculating for the customer the total with a 15%, 18% or 20% tip on all bills, regardless of party size. Diners can opt to tip more or less than the suggested amounts, or to not tip. Depending on how patrons react and how well the new software system works, Darden may switch to such suggested tips at all of its restaurants.

Texas Roadhouse Inc., which includes a tip of 15% for parties of eight or more at many of its more than 390 restaurants, is planning to phase out automatic gratuities by the end of the year, a spokesman said.

The ruling is unpopular with waiters and waitresses as it may cost them money, but the ruling makes sense.

Once a “tip” is required it is no longer a tip.  It is a service charge or even a sales commission.

Suggesting tip amounts is a great idea.

Hopefully, customers will tip at or above suggested amounts when service is good.

Follow Matt Milhouse on Facebook and Twitter.  Listen to 100.5 The River weekdays, 10am – 3pm.

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