If you've ever been to lunch or dinner with a large group, then you've probably been charged automatic gratuity. Usually, 18% to 20% is added for parties of eight and larger. This is standard for most restaurants, but a new IRS ruling may take automatic gratuities off the menu.
When it comes to base pay, most servers get $2.13 an hour. Obviously, they rely on their tips to live. A big party can mean a solid 20% tip since it's already added on to the bill. But starting in January, that automatic gratuity will now be considered part of the servers wages. It will go in their check and it will be taxed.
A good server at a busy restaurant can make a couple hundred dollars in tips per shift. Usually, they're on the honor system to claim that on their tax returns. Just one reason this new rule isn't popular with some in the industry, but not everyone thinks this is a bad idea.
"I'm an advocate of the fact that people get the option to choose and I think it makes our servers work harder to make the customer happy, which is a good thing. There's always a silver lining somewhere," said Rudy Theale who owns Nipper's in Jacksonville Beach.
Nipper's has a policy for parties of eight or more, they add 20% gratuity to the check. Starting in January, that will change.
Theale said, "What was just a tip paid on a nightly basis, we now have to track that as part of their income every two weeks and we're not going to do it. We're changing our policy because of the way the rules have been written."
Jacksonville attorney Kevin Hyde said for those that have been honest about what they make, reporting all of their tips, this won't mean much of a difference.
"No because right now they way it works is that they are supposed to report the tips as wages on their tax returns," he said.
Hyde also explained why the IRS is likely taking this step.
"They probably felt they were losing income from unreported wages," he said.
Some restaurant groups are already looking at taking automatic gratuities off the menu, Nipper's included.
"We're going to show a 15, 18 and 20 percent option and let the customer choose," Theale said. "This eliminates the need for the IRS to tax that."