The Treasury Department and Internal Revenue Service recently issued a new Notice that would establish a program for voluntary tip reporting between the IRS and employers in various service industries.
New Tip Reporting Program Proposed by IRS
Notice 2023-13 proposes the Service Industry Tip Compliance Agreement (SITCA) program, with the nature of its initial proposal intended to provide an opportunity for public comment. The ultimate aim of the SITCA program will be to serve as the sole tip reporting compliance program for service industry employers.
Providing ‘Transparency and Certainty’
The IRS have designed the SITCA program to improve tip reporting compliance by taking of advantage of advancements in point-of-sale, time and attendance systems, as well as electronic payment settlement methods. SITCA would also reduce the administrative burdens for both the IRS and taxpayers, while providing more transparency and certainty to taxpayers.
SITCA Program Features
A statement on the IRS website said that the proposed SITCA program has several features including: “The monitoring of employer compliance based on actual annual tip revenue and charge tip data from an employer’s point-of-sale system, and allowance for adjustments in tipping practices from year to year.
“Participating employers demonstrate compliance with the program requirements by submitting an annual report after the close of the calendar year, which reduces the need for compliance reviews by the IRS.
“Participating employers receive protection from liability under the rules that define tips as part of an employee’s pay for calendar years in which they remain compliant with program requirements.
Small Business Deals
“Participating employers have flexibility to implement employee tip reporting policies that are best suited for their employees and their business model in accordance with the section of the tax law that requires employees to report tips to their employers.”
Current Programs to be Replaced by SITCA
The SITCA program proposes to replace the current Tip Rate Determination Agreement, the Tip Reporting Alternative Commitment (TRAC), and the Employer-designed TRAC.
However, the gaming industry is not affected by SITCA, and continues operating according to the Gaming Industry Tip Compliance Agreement.