How to Untangle the Confusion About Tips and Service Charges

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How to Untangle the Confusion About Tips and Service Charges

By Jay Starkman and Alex Nadal

When a customer pays the bill at a restaurant, the difference between paying a tip or a service charge is usually not a big deal. But for the restaurant owner (the employer), the server (the employee), and the Internal Revenue Service (IRS), the difference can be a huge deal.

Wage and hour and tax reporting rules for employers are complicated. They vary widely by state, and requirements are changing all the time. Employers, especially those in service industries such as restaurants, hotels or salons, should understand the distinctions and how they impact wage calculations and employee and tax reporting requirements under the law.

As reported in the Business Journals

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