The IRS and Treasury Department issued Notice 2023-13 on February 6, 2023, which impacts tipped employees in the service industry. This notice contains a proposed revenue procedure, establishing the Service Industry Tip Compliance Agreement (SITCA). This program creates a voluntary reporting relationship between employers in the service industry and the IRS. The notice outlines guidance for the voluntary program and seeks public comment.
The design of the proposed program aims to take advantage of enhancements to time and attendance systems, point-of-sale, and electronic payment settlement methods for improved tip reporting compliance. It also aims to reduce IRS and taxpayer administrative burdens while providing more certainty and transparency to those who pay taxes.
Some of the key features of the proposed program include:
- Employer compliance monitoring based on annual tip revenue and charge tip data (from point-of-sale system) and adjustment allowances in tipping practices annually
- Compliance demonstration through the submission of an annual report, reducing the need for the IRS to perform compliance reviews
- Protection from liability under rules that apply to employers with tipped employees
- Flexibility to create and implement tip reporting policies based on employee needs and business model (as long as those policies adhere to the tax law around tip reporting)
Another intent of the proposed SITCA program is to create a sole program that replaces existing tip reporting programs:
- Tip Rate Determination Agreement (TRDA)
- Tip Reporting Alternative Commitment (TRAC)
- Employer-designed TRAC (EmTRAC)
However, this proposed program is not planned to impact the Gaming Industry Tip Compliance Agreement (GITCA) program.
If you have feedback about the proposed program, you must reply to the IRS by May 7, 2023. Follow the comment instructions outlined in the full notice.
Tracking tips can be a challenge for employers with tipped employees, but failing to do so puts the company at risk of compliance-related penalties and fines. The right HCM platform simplifies the task of tracking tips. If your business needs assistance, whether to adhere to the existing tip reporting programs or in advance of the finalization of the SITCA program, contact us to learn how the platform we deliver can help.
This article is provided on an informational basis and does not constitute financial or legal advice.