The
IRS
recently
released
Revenue
Ruling
2012-18,
which
provides
updated
guidance
for
employers
on
the
treatment
of
employee
tips
for
FICA-tax
purposes.
Tips
are
subject
to
both
the
employer's
and
the
employee's
share
of
the
FICA
tax,
even
though
they
are
not
paid
directly
from
the
employer
to
the
employee.
Special
procedures
govern
how
employees
report
tips
to
employers
and
when
employers
must
withhold
and
pay
the
required
FICA
taxes
on
those
tips.
Among
other
things,
the
new
guidance
clarifies
the
distinction
between
tips
and
service
charges.
Service
charges,
such
as
automatic
gratuities
added
to
a
bill
for
large
parties,
are
not
tips
for
FICA
purposes
and
may
not
be
reported
using
the
special
procedures
that
apply
to
tips.
They
must
be
treated
like
other
wages
paid
by
the
employer.
This
means,
for
example,
that
they
are
subject
to
FICA-tax
withholding
at
the
time
they
are
paid
to
the
employee.
In
a
related
announcement,
the
IRS
has
released
a
memorandum
to
field
agents
providing
instruction
on
audits
of
businesses
where
tipping
of
employees
is
customary.
The
memorandum
says
that,
in
general,
the
principles
in
Revenue
Ruling
2012-18
are
retroactively
effective.
But
in
certain
cases
it
may
be
appropriate
for
auditors
to
apply
the
new
guidance
on
service
charges
prospectively
from
January
1,
2013,
"in
order
to
allow
businesses
not
currently
in
compliance
additional
time
to
amend
their
business
practices
and
make
needed
system
changes."
Although
this
announcement
indicates
the
possibility
of
some
relief
for
employers
that
have
not
handled
service
charges
in
the
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