//
you're reading...
Late Breaking News, Special Report

IRS Notification on Tips and Service Charges

The Internal Revenue Service recently released administrative guidelines  for employers and employees in a question and answer format concerning  Rev. Rul. 2012-18, published in the 2012-26 Internal Revenue Bulletin, which affirm the factors used to determine whether  earnings should be characterized as tips or as service charges.

The IRS is aware that some businesses may have to change automated or manual reporting systems in order to comply with the proper treatment of service charges as specified in A&A 1 of Rev. Rul 2012-18.  Starting in 2013, any payments made as a service  charge, rather than as a tip, should be considered wages for reporting and taxation purposes. The absence of any of the following factors indicates that a payment is most likely a service charge rather than a tip, and should be reported as regular wages:

  1. The payment must be made free from compulsion;
  2. The customer must have the unrestricted right to determine the amount;
  3. The payment should not be subject of negotiation or dictated by employer policy; and,
  4. Generally the customer has the right to determine who receives the payment.

The changes in service charges being included as regular wages causes several reporting changes:

  1. Service charges would be reported in Box 3 of the Form W-2 as Social Security wages; and, not in Box 7 as Social Security Tips;
  2. Service charges will no longer be included in the calculation of allocated tips; and,
  3. On the Form 941, Service Charges would be included in the amount entered on line 5a, column 1; rather than on line 5b, column 1 for Social Security Reporting.

More information on the revenue ruling can be found on the IRS website at Rev. Rul 2012-18

Advertisements

About hawaiipayrollservices

Founded in 2003 under the premise to provide Hawaii Businesses with better Advice, better Service, better Value... for an Easier life and Peace of Mind! We understand payroll is the largest expense and biggest challeng for any business. Whether you're hiring your 1st employee, or you employee thousands. Simplify your payroll processing, payroll funds disbursement; let our knowledgeable staff with 20 years experience work for your company, while saving 15-30% on your overall payroll processing expense.

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

Hawaii Payroll Services

September 2012
S M T W T F S
« Aug   Oct »
 1
2345678
9101112131415
16171819202122
23242526272829
30  

Categories

Advertisements
%d bloggers like this: