IRS introduces new service industry tip reporting program

Gustavo Lopez


IRS introduces new service industry tip reporting program

The Department of the Treasury and the Internal Revenue Service today released Notice 2023-13 , which contains a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program between the 'IRS and employers in various service industries. . The IRS is issuing this guidance in the proposed format to provide an opportunity for public comment.

The proposed SITCA program is designed to take advantage of advances in point of sale, time and attendance systems, and electronic payment methods to improve tip reporting compliance. The proposed program would also reduce administrative burdens for taxpayers and the IRS and provide greater transparency and certainty for taxpayers. The proposed program includes several features:

  • Monitoring employer compliance based on actual annual tip revenue and tip data from an employer's point-of-sale system and allocating adjustments in tipping practices from year to year.
  • Participating employers demonstrate compliance with program requirements by submitting an annual report after the close of the calendar year, reducing the need for IRS compliance reviews.
  • Participating employers receive liability protection under the rules that define tips as part of an employee's pay during calendar years in which they remain eligible for the program.
  • Participating employers have the flexibility to implement employee tip reporting policies that best suit their employees and business model in accordance with the section of the tax law that requires employees to report tips to their employers.

The intent of the SITCA program is to serve as the single tip reporting compliance program for employers in various service industries and would replace the following programs:

  • Tip Rate Determination Agreement (TRDA)
  • Alternative Tip Reporting Commitment (TRAC)
  • Employer Designed TRAC (EmTRAC)

The IRS continues to explore opportunities within the gaming industry and therefore this program has no impact on the existing Gaming Industry Tip Compliance Agreement (GITCA) program.

The proposed tax procedure provides that for employers with any of these existing agreements, such agreements will remain in effect until the earlier of:

  1. The employer's acceptance into the SITCA program;
  2. An IRS determination that the employer is in breach of the terms of the TRDA, TRAC, or EmTRAC agreement; EITHER
  3. The end of the first full calendar year after the final income procedure is published in the Tax Agency Bulletin.