The Internal Revenue Service (IRS) is seeking public input on a plan that would permit employers in service industries to send gratuities to the tax agency.
The government announced the proposed establishment of the Service Industry Tip Compliance Agreement (SITCA) program on Monday.
IRS SITCA Program
The program would be optional, according to the government, and be developed to take advantage of advancements in point-of-sale, time and attendance, and electronic payment settlement methods. Its objective is to boost compliance with tip reporting.
The IRS stated that other reporting schemes would be replaced by the SITCA.
Based on annual tip revenue and charge tip data from an employer’s point-of-sale system, employer compliance will be monitored. The requirement for participating firms to file an annual report following the conclusion of the fiscal year lessens the need for IRS compliance audits.
Feedback and public comments on the subject must be sent by May 7 in order to be considered. Many employees in the service sector, such as those who work in restaurants, rely on tips to augment their hourly salary, which is typically less than the minimum wage.
Prior to delaying implementation, the IRS recommended new guidelines for reporting payments exceeding $600 made through PayPal and Venmo.
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What Is Covered By SITCA Program?
The IRS stated that this new initiative would reduce the workload for taxpayers and administrative staff while increasing clarity and predictability.
The application has a number of features, such as:
- Based on annual tip revenue and charge tip data from the point-of-sale system, employers’ compliance is monitored. Additionally, the algorithm would be modified to account for yearly variations in tipping customs.
- Employers who take part will submit an annual report to the IRS to lessen the need for compliance audits.
- Rules that classify tips as a portion of a wage would shield participating companies from responsibility.
- According to tax legislation, participating employers are free to enact their own employee tip reporting procedures.
According to the IRS, the SITCA program will be the only tip-reporting compliance mechanism for employers across diverse service industries. There will be a replacement for the Tip Rate Determination Agreement (TRDA), the Tip Reporting Alternative Commitment (TRAC), and the Employer tailored TRAC (EmTRAC).
Until the employer is admitted to the SITCA program, the IRS determines that the employer is not in compliance with their current agreement, or the end of the first full calendar year following the publication of the final revenue procedure in the Internal Revenue Bulletin, the current compliance procedures will remain in force.
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