Tax Advice for Tips

Tips are not taxable if they are paid by customers on an entirely voluntary basis and are retained by employees. Tips received by your employees directly from customers at the end of a meal without any prearrangement are considered voluntary. Mandatory "tips" or required service charges, on the other hand, are taxable. Examples of mandatory charges are written statements on menus, brochures, or advertisements that tips will be added to meal prices. In the casse of banquests, any gratuities that are agreed to in advance are considered required, not voluntary, and as a result are subject to tax. For example, if your standard banquet agreement states "the suggested gratuity is 15%" and prior tot he event, your customer agrees to this or some other negotiated amount, the gratuity is taxable.

Serviice charges added to the price of meals instead of, or in addition to, tips are a part of the selling price of the meals and are subject to tax, even though they may be paid over to employees.

#tax #tips

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