IRS proposes tip-reporting program

The Internal Revenue Service has issued proposed guidance for a voluntary tip-reporting program between the agency and employers in various service industries.

Notice 2023-13 contains a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement program, which aims to leverage advancements in point-of-sale, time and attendance systems and e-payment settlement methods to improve compliance and “decrease taxpayer and IRS administrative burdens and provide more transparency and certainty to taxpayers.”

The program includes monitoring of employer compliance based on actual annual tip revenue and charge tip data from an employer’s POS system and allowance for adjustments in tipping practices year to year. Participating employers submit an annual report after the close of the calendar year, billed as reducing the need for compliance reviews by the IRS. Complying employers would be protected from liability under the rules that define tips as part of an employee’s pay.

The SITCA program would replace the Tip Rate Determination Agreement, the Tip Reporting Alternative Commitment and the Employer-designed TRAC. (This program does not impact the existing Gaming Industry Tip Compliance Agreement program.)

For employers with any of these existing agreements, such agreements would remain in effect until the earlier of the employer’s acceptance into the SITCA program; IRS determination that the employer is noncompliant with the terms of their TRDA, TRAC or EmTRAC agreement; or the end of the first full calendar year after the final revenue procedure is published in the Internal Revenue Bulletin.

Feedback on the proposed program will be taken until May 7.