A recent IRS rule change may cause some restaurants to drop required tips from the bottom of their bills.
Deceiving Tipping Practices
There is a sushi restaurant I occasionally go to has a very annoying feature. After eating, they bring the bill. It looks just like every other bill I’ve gotten with one exception. They itemize every item, they have a line for a tax, and they give an option to leave a tip.
However, they also have a line item for the tip, which is a required 18%. I think this is extremely annoying because I don’t get to take into account how the service is.
But what’s worse is the deception. Even after calculating the 18% tip and adding it to the total, they have another blank line allowing you to add another tip of your choosing. If you’re not aware of the required tip (which is not obvious at all), you may end up unintentionally leaving a 30% tip.
Why Required Tips May Go Away
Thankfully, this practice may be disappearing in many cases. The IRS will begin classifying automatic gratuities as service charges, which affects both the employees and the restaurants for tax purposes. Service charges are subject to payroll tax withholding, while tips are left up to the employees to report as income.
In the past, it was up to the employee to report the income to the IRS, and as you can imagine, a lot of waiters and waitresses would just pocket at least part of their tips and not report them. More service charges also means additional paper work (having to calculate those tips into the hourly wages paid would be difficult), so restaurants may simply remove the required tips and let the employees worry about the taxes.
Suggested Tip Amounts Are OK
What we may see is suggested tips at the bottom of checks. So the bill will include what a 15%, 18% and 20% tip would come out to. It eliminates the need to do the calculation yourself and saves time. I like having it there and I’m sure that many servers do as well because it anchors people into thinking that one of those numbers is the right amount to give, but are likely higher than the average tip left by customers.
How do you feel about required tips? Are you a fan of recommended tip amounts?