Restaurant Week Servers Experience New IRS Ruling

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Phillip Taylor PT

A new tax ruling which treats automatic gratuities as wages, rather than tips, could change how some local servers experience Restaurant Week.

The Internal Revenue Service on Jan. 1 began reclassifying automatic gratuities as service charges, a change which forces servers to wait until they receive their paychecks to obtain their money. Additionally, the money is now subject to payroll tax; previously, reporting tips was left to the server’s discretion.

Automatic gratuities are most frequently tacked onto bills racked up by large parties, but many restaurants have traditionally mandated them in situations where servers were at risk of not being fairly compensated for their work. Although a Greater Charleston Restaurant Association spokeswoman wasn’t certain how many Charleston Restaurant Week participants trot out the practice for the event, both Grill 225 and Circa 1886 enforce 20 percent gratuities.

According to Circa 1886 spokeswoman Linn Lesesne, the shift in IRS interpretation won’t deprive Circa 1886 servers of anticipated cash because the restaurant five years ago started rolling all collected tips into paychecks. Servers are “paid every two weeks…with all of the appropriate taxes taken out,” Lesesne writes.

Because the new rule will complicate payroll accounting, many chain restaurants are now doing away with automatic gratuities. Darden Restaurants, which operates Red Lobster and Olive Garden, this month eliminated its mandatory tip for groups of eight or more guests.

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