Estados Límite de Servicio

Several agreements exist between certain industries and the Internal Revenue Service to establish tip rates for tipped employees in specific occupational cat-egories. The objective of the program is to improve and ensure compliance by employers and employees with statutory provisions relating to tip income.

In cooperation with the food and beverage industry, IRS has developed a Tip Rate Determination/Education Program to help employers address the difficulties associated with tip income reporting. The program primarily consists of two vol-untary agreements. Under this program, employers may choose either to work with IRS to determine an established tip reporting rate, or enter into a contrac-tual arrangement known as the Tip Reporting Alternative Commitment, whereby employers commit to educating their employees about tip compliance and re-quire regular statements of accountability from them.

The cooperative agreements that have been set up by IRS include:

s Tip Reporting Alternative Commitment (TRAC) for the food and beverage industry;

s Tip Reporting Alternative Commitment (TRAC) for the cosmetology and bar-ber industries;

s Tip Reporting Alternative Commitment (TRAC) for use by all other industries where tipped employees receive both cash and charged tips;

s Tip Rate Determination Agreement (TRDA) for use by employers in the food and beverage industry;

s Tip Rate Determination Agreement (TRDA) for use by all other industries with tipped employees other than in the food and beverage industry and the gaming industry;

s Gaming Industry Tip Compliance Program - Revenue Procedure 2007-32; and s EmTRAC—Employer-designed Tip Reporting Alternative Commitment (food and beverage industry designing their own tip compliance program in conjunc-tion with the IRS).

Short summaries of the arrangements follow. A 2010 Payroll Strategic White Paper reviews the various arrangements in detail. A program covered in the 2010 document, the Attributed Tip Income Program, or ATIP, no longer exists.

TRDA Arrangements

Under the TRDA, certain criteria must be met for an employer to participate.

This program allows an employer to work with IRS to determine a tip rate to which it can agree. The tip rate is based on a six-month period.

SECTION 6: IRS TIP PROGRAMS

IRS has several tip agreements and rates for various industries.

To qualify, the employer must get 75 percent of the tipped employees to sign a Tipped Employee Participation Agreement and report tips at or above the prede-termined rate, and report on workers that do not sign the TEPA.

In return, there is no specific education requirement and the TRDA assures the employer that prior periods will not be examined as long as participants comply with the agreement’s requirements.

There are some minor industry-specific differences between TRDA types. For example, the food or beverage industry agreement contains a provision requiring that, for each establishment that is a ‘‘large food or beverage establishment,’’ the employer is to comply with the requirements for filing Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, and send an addi-tional copy of each Form 8027 to IRS.

The requirement for separate reporting for each large food or beverage establish-ment is not relevant for employers outside the food or beverage industry. Simi-larly, the Gaming Industry Tip Compliance Agreements (GITCAs) contain provi-sions specific to the gaming industry. Additionally, the GITCA employee partici-pation threshold is negotiated and may be less than 75 percent.

TRAC Arrangements

Generally, under a TRAC, no tip rate is agreed upon, as in the case of the TRDA, and employees are not asked to sign an agreement between themselves and the employer. Unlike TRDA, TRAC has no validation period, so there is no notice and demand for the employer’s portion of FICA taxes is appropriate.

The TRAC program requires training of existing and newly-hired employees on tips and tip reporting procedures. All tipped employees are covered.

Some differences between the three TRAC agreements include, for example, the food or beverage industry form specifies references to publications to the food or beverage industry, while the ‘‘other’’ industry agreement references general pub-lications.

The cosmetology and barber industries agreement contains employer responsi-bilities related to booth renters and independent contractors, particularly with regard to education concerning tip reporting.

Employer-Designed Tip Reporting Commitment

The program is similar to TRAC with regard to training programs concerning the employee’s legal obligation to report all cash and charged tips to their employer, as well as the tip reporting procedures that provide for a written or electronic statement (at least monthly) reflecting all tips for services attributable to each employee.

Employers must agree to certain special recordkeeping requirements as well. The IRS can end an EmTRAC program if an employer fails to comply with the agreement.

Determining tip rates are based on a six-month period.

Resources

RESOURCES

BNA’s Payroll Library (Subscription Service), ‘‘Taxes on Tips,’’ ‘‘FLSA Mini-mum Wage Rules,’’ MiniMini-mum Wage and Overtime State Summaries

(http://hr.bna.com).

Fair Labor Standards Act 29 U.S.C. § 203(t)

Internal Revenue Code § § 3121(q) and 6053 (in BNA’s Payroll Library).

Wage and Hour Regulations 29 CFR § § 531.50, 531.55, 531.56, 531.59 (in BNA’s Payroll Library).

Treasury Regulations § § 31.3121(a)(12)-1, 31.3401(f)-1 (in BNA’s Payroll Li-brary).

‘‘Topic 761: Tips—Withholding and Reporting,’’ IRS Tax Topics (on IRS web-site)

‘‘Market Segment Understandings (MSU)’’ (on IRS website)

Fact Sheet No. 15, Tipped Employees Under the Fair Labor Standards Act (FLSA), Wage and Hour Division, Labor Department (on Labor Department website).

‘‘New IRS Program Uses Data from Employees’ Forms 4137 to Determine the Social Security and Medicare Taxes Owed by the Employers of Tipped Employ-ees,’’ IRS Headliner Volume 298, May 25, 2010.

Internal Revenue Service Publication 531 (2012), Reporting Tip Income (on IRS website).

IRS Publication 5080, Form 4137 Compliance Program (on IRS website).

IRS Revenue Ruling 2012-18, (http://www.irs.gov/pub/irs-drop/rr-12-18.pdf).

IRS Revenue Procedure 2007-32,

(http://www.irs.gov/pub/irs-drop/rp-07-32.pdf).

IRS Revenue Procedure 2006-30,

(http://www.irs.gov/pub/irs-drop/rp-06-30.pdf).

IRS Revenue Procedure 2003-35,

(http://www.irs.gov/pub/irs-drop/rp-03-35.pdf).

IRS Notice 2001-1,

(http://www.irs.gov/pub/irs-drop/n-01-1.pdf).

‘‘Beauty Salons Seek Tax Break Used by Restaurant Industry,’’ Payroll Adminis-tration Guide Newsletter, June 5, 2013. (in BNA’s Payroll Library).

RESOURCES

‘‘State Highlights, Massachusetts’’ Payroll Administration Guide Newsletter, Jan.

30, 2013.

‘‘Employer’s Policy on Tip-Sharing Violates State Law, Court Rules’’ Payroll Administration Guide Newsletter, Jan. 2, 2013.

‘‘Appeals Court Certifies Tip-Pool Questions to State’s High Court’’ Payroll Ad-ministration Guide Newsletter, Nov. 7, 2012.

‘‘IRS Auditors to Take Closer Look at Gratuities at Restaurants, Other Industries, Official Says,’’ Payroll Administration Guide Newsletter, Aug. 15, 2012.

‘‘Restaurant Industry Sues to Prevent Tip-Pooling Rules,’’ Payroll Administration Guide Newsletter, Aug. 1, 2012.

‘‘IRS Issues Taxation Guidance Related to Tipped Employees,’’ Payroll Adminis-tration Guide Newsletter, July 4, 2012.

‘‘Federal Court Upholds Labor Department Tip Credit Rule,’’ Payroll Adminis-tration Guide Newsletter, June 6, 2012.

‘‘Large Employers Face High-Dollar FLSA Class Action Lawsuits,’’ Payroll Ad-ministration Guide Newsletter, March 14, 2012.

‘‘IRS Plans to End Voluntary Attributed Tip Income Program,’’ Payroll Adminis-tration Guide Newsletter, Aug. 17, 2011.

‘‘Navigating the Requirements for Filing IRS Form 8027,’’ Payroll Administra-tion Guide Newsletter, Aug. 3, 2011.

‘‘Tipped ‘Dual’ Employees Can Sue for Back Wages,’’ Payroll Administration Guide Newsletter, May 11, 2011.

‘‘IRS Warns of Reporting Dodge on Payments for ‘Tips’,’’ Payroll Administra-tion Guide Newsletter, Dec. 22, 2010.

‘‘Tip Reporting Agreements Available to Employers,’’ Patrick Haggerty, IOMA’s Payroll Practitioner’s Monthly, November 2010 (IOMA is a subsidiary of BNA).

‘‘Food, Beverage Industry Understates Employee Tip Income, IRS Official Says,’’ Payroll Administration Guide Newsletter, May 12, 2010.

‘‘IRS Assesses Employer Share of FICA Taxes for Employee-Reported Tips on Form 4137,’’ Payroll Administration Guide Newsletter, March 17, 2010.

‘‘Court Refuses to Review Ruling Overturning Award,’’ Payroll Administration Guide Newsletter, Sept. 30 , 2009.

Appendix: State Charts