IRS Rule Leads Restaurants to Rethink Automatic Tips

An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don't always report them fully.

Darden Restaurants Inc., DRI +0.57% owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.

[size=1.5em][/size][left][size=1.5em][color=rgb(0, 0, 0)]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.[/color][/size][/left]
[/size][size=1.5em][/color][/size][left][size=1.5em][color=rgb(0, 0, 0)]"I think the vast majority of restaurant owners will discontinue the practice," says Denise Wheeler, an employment attorney in Fort Myers, Fla., who represents several restaurant chains.[/color][/size][/left]

Good .

Tipping the hired help has become most annoying .

IF a restaurant cannot afford to pay its waiters and waitresses , simply close down  :-[

I support the 15 percent gratuity since I was a former card carrying member of H. E. R. E. , hotel employees and restaurant employees union