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The restaurant owner does have an alternative!
The owner of the restaurant may enter into an agreement with
the IRS and, in return the IRS will agree to forego charging the
employer directly for the unreported tips.
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Unreported Tips -
Find the strategy to reduce or even kill the tax and
relieve the employer from a "Tax Attack ! |
The IRS has established voluntary compliance agreements for
industries, such as the restaurant industry, where tipping is
customary. These agreements are designed to enhance tax compliance
among tipped employees through taxpayer education instead of
through traditional enforcement actions, such as tip examinations.
Three types of tip agreements have been developed for the food
and beverage industry: (download PDF files)
Comparing TRDA and TRAC Agreements
| TRDA |
TRAC |
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Requires the IRS to work with the business to arrive at
a tip rate for its various occupations
|
Does not require that a tip rate be established but it
does require the employer to:
- Establish a procedure where a directly tipped
employee is provided (no less than monthly) a written
statement of charged tips attributed to the employee
- Implement a procedure for the employees to verify or
correct any statement of attributed tips.
- Adopt a method where an indirectly-tipped employee
reports his/her tips (no less than monthly).
Establish a procedure where a written statement is
prepared and processed (no less than monthly) reflecting
all cash tips attributable to sales of the directly-tipped
employee
|
|
Requires the employee to enter into a Tipped Employee
Participation Agreement (TEPA) with the employer
|
Does not require an agreement between the employee and
the employer.
|
|
Requires the employer to get 75% of the employees to
sign TEPAs and report at or above the determined rate
|
Affects all (100%) employees
|
|
Provides that if employees fail to report at or above
the determined rate, the employer will provide the names
of those employees, their SSNs, job classification, sales,
hours worked, and amount of tips reported
|
Provides that if the employees of a business
collectively underreport their tip income, tip
examinations may occur but only for those employees that
underreport
|
|
Has no specific education requirement
|
Includes a commitment by the employer to educate and
reeducate quarterly all directly and indirectly-tipped
employees and new hires of their statutory requirement to
report all tips to their employer
|
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Participation assures the employer that prior periods
will not be examined as long as participants comply with
the requirements under the agreement
|
Same rule
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EmTRAC Agreements
The IRS developed the EmTRAC Agreement program in response to
employers in the food and beverage industry who expressed an
interest in designing their own TRAC programs.
EmTRAC Agreements are available to employers in the food and
beverage industry whose employees receive both cash and charged
tips. The EmTRAC program retains many of the provisions in the
TRAC agreement including:
- The employer must establish an educational program that
trains employees that the law requires them to report all
their cash and charged tips to their employer.
- Education must be furnished for newly
hired employees and quarterly for existing employees .
- The employer must establish tip reporting procedures under
which a written or electronic statement is prepared and
processed on a regular basis (no less than monthly),
reflecting all tips for services attributable to each
employee.
The EmTRAC program provides an employer with considerable
latitude in designing its educational program and tip reporting
procedures, which the employer may combine.
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