Voluntary program in food and beverage industry expected to simplify process
When you leave a cash tip for your favorite restaurant waitress, that's income for her. But does it result in more tax revenue for Uncle Sam? Not always, which is why the IRS is launching a new voluntary program to clamp down on unreported tips in the food and beverage industry.
The program, called Attributed Tip Income Program, or ATIP, will allow food and beverage establishments to report estimated income from tips, based on their overall sales. It's designed to reduce the paperwork that restaurants currently maintain, while allowing the Internal Revenue Service to cast a wider net on servers' tips, said IRS spokesman Bill Steiner.
"In small businesses, where there is a gray area in the ability to track incomes and expenses, there will always be those people who either misinterpret the law, or don't report their expenses and incomes correctly," he said.
Currently, the IRS estimates that 84 percent of all tip income goes unreported, according to New York-based certified public accountant Steven Zanon, who's studied the issue. Americans tipped about $20 billion in 2004, according to a Cornell University study.
Under current IRS rules, restaurants are required to maintain a daily log of tips received and report it as income for each employee. But some tips, especially cash, presumably go unreported.
With the pilot program, restaurant owners would estimate the amount of tips collected using a formula based on the total food and beverage sales of the establishment. The formula includes a 2 percent deduction to account for low tippers. The restaurant owner reports that estimated total tip income for employees on their W-2 forms.
In exchange, the IRS agrees not to audit the restaurant -- or participating employees -- for tip income.
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Source - The Sacramento Bee
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