New Tip Reporting Program for Service Industry Employees

The Treasury Department and IRS issued Notice 2023-13 on February 6, 2023, affecting tipped employees in the service industry. This notice outlines a proposed revenue procedure establishing the Service Industry Tip Compliance Agreement (SITCA). The proposed program creates a voluntary reporting relationship between the IRS and employers in the service industry, outlines guidance, and requests comments from the public.

The program’s design aims to take advantage of enhancements to time and attendance systems, point-of-sale, and electronic payment settlement methods to improve compliance with tip reporting. It also strives to reduce administrative burdens on taxpayers and IRS officials while providing more transparency and certainty to those who pay taxes.

Some of the proposed program’s key features include:

1. Compliance demonstration through the submission of an annual report, reducing the need for the IRS to perform compliance reviews
2. Employer compliance monitoring based on annual tip revenue and charge tip data (from a point-of-sale system) and annual adjustment allowances in tipping practices
3. Flexibility to create and implement tip reporting policies based on employee needs and business model (as long as those policies adhere to the tax law around tip reporting)
4. Protection from liability under rules that apply to employers with tipped employees

Another intent is the creation of a single program that would effectively replace existing tip reporting programs:

1. Tip Rate Determination Agreement (TRDA)
2. Tip Reporting Alternative Commitment (TRAC)
3. Employer-designed TRAC (EmTRAC)

SITCA is not planned to impact the Gaming Industry Tip Compliance Agreement (GITCA) program.

If you have feedback about the proposed program, you must reply to the IRS by May 7, 2023. Follow the comment instructions outlined in the full notice.

Tracking tips can be a challenge for employers with tipped employees, but failing to do so puts the company at risk of compliance-related penalties and fines. The right payroll and time-tracking platform makes it easier to track tips and time. If your business needs assistance, whether to adhere to the existing tip reporting programs or in advance of the finalization of the SITCA program, contact us to learn how the platform we deliver can help.

This article is provided on an informational basis and does not constitute financial or legal advice.