IRS Non-Tip Wage Requirements

New IRS tax law states that any gratuities not withheld by the house, but paid to the employee, must be taxed as part of "non-tip wages." Beginning with version 5.0.96.0, these reporting changes are reflected in various Back Office Maintenances, interfaces, and reports, as well as several Front End reports and receipt calculation. Users can select from a variety of settings when configuring their system for the new IRS non-tip wage options. These options are discussed in greater detail below and links to the appropriate topics have been provided.

ClosedWhat are Non-Tip Wages?

"Service charges added to a bill or fixed by the employer that the customer must pay, when paid to an employee, will not constitute a tip but rather constitute non-tip wages. These non-tip wages are subject to social security tax, Medicare tax, and federal income tax withholding. In addition, the employer cannot use these non-tip wages when computing the credit available to employers under section 45B of the Internal Revenue Code, because these amounts are not "tips." Common examples of service charges (sometimes called "auto-gratuities") in service industries are:

  • Large Party Charge (restaurant)
  • Bottle Service Charge (restaurant and night-club)
  • Room Service Charge (hotel and resort)
  • Contracted Luggage Assistance Charge (hotel and resort)
  • Mandated Delivery Charge (pizza or other retail deliveries)."

To view the IRS tax topic fact sheet for more information on non-tip wage withholding and reporting, click here .

ClosedHow Do Non-Tip Wages Affect Reports?

Once settings have been configured, non-tip wages will be displayed on the appropriate Front End and Back Office reports, listed below.

Back Office

When non-tip wage data is present, the non-tip wage amount will be subtracted from Gratuities and Tips (dependent upon the Maintenance(s) configured for non-tip wages).

Front End (Register Reports)

When non-tip wage data is present, the non-tip wage amount will be subtracted from Gratuities and Tips (dependent upon the Maintenance(s) configured for non-tip wages).

ClosedHow Do Non-Tip Wages Affect Interfaces?
ClosedHow Do Non-Tip Wages Affect Receipts?

Receipts will still display the Gratuity line, however; the Gratuity total will include any service charges (non-tip wages) applied to the check. This change will not be visible to the customer.

ClosedHow to Configure Back Office Maintenances for Non-Tip Wages

There are currently two Maintenances which allow the user to set non-tip wage options: Button Maintenance and Section/Table Maintenance. Users can configure these Maintenances to reflect non-tip wage usage.

Edit Gratuity Amount
Users can enable the Gratuity is a Non-Tip Service Charge option. When checked, this indicates that any gratuities added via the Edit Gratuity button will be reported as employee wages.

Edit Section Info
Users can enable the Gratuity is a Non-Tip Service Charge option. When checked, this indicates that any gratuities added to checks in the selected section will be reported as employee wages.

Open topic with navigation