TIP-TOP TAXING
The new IRS tip compliance program really sticks it to Nevada’s gaming workers
BY GEORGE HARRIS
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George Harris is publisher of Liberty Watch: The Magazine. He is also a political activist and successful Southern Nevadan businessman. Reach Harris at gopgeorge@earthlink.net
Other stories by George Harris
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IRS. No three letters spark disdain with the American public more than those. If it weren’t for the creative withholding tax — the bi-weekly theft that enables a majority of American employees to finance their annual IRS bill (for earning a living) — the “revenue service” would not exist due to public outrage. Too many people just could not fathom (or afford) to write a single check on April 15 for the lump sum that the agency collects each year. Having a compassionate heart, the IRS is aware of the trouble this may cause some families. So they assist us with the “service” of a withholding tax. Rather than think of it as bi-weekly theft, we should look at it as a savings plan to pay income taxes.
The IRS recently realized some workers may need a refreshed savings plan. Effective Oct. 8, the IRS Tip Compliance rates change for gaming industry employees who happen to earn a little extra money providing much appreciated hospitality. At this time, tipped-classified employees are being asked to consider whether or not they would like to participate in the IRS Tip Compliance program. They have until the end of the month to decide.
There have been substantial changes to the Gaming Industry Tip Compliance Agreement [GITCA] program that will affect not only tip-based employee rates but their ability to qualify for audit protection. The IRS has implemented specific changes to the Gaming Industry Tip Compliance Program that replaces the existing program. Key changes under the new program include an updated definition of a “participating” employee and a new rate structure.
What is the new tip-tax structure, you ask. Currently, employees of this nature are taxed at $8 an hour. However, the IRS became curious about how much folks like Eric at the casino bar and Sarah in the room service operation might earn per interaction/per hour. Since tourists don’t exactly carry cash, the IRS poked their noses in the credit card receipts of these transactions to determine whether or not they were collecting their share of a hospitality worker’s tips.
The IRS concluded that tip-based employees make 300 percent more than $8 an hour. So the agency is proud to introduce the new tax rate of $28 per hour.
Not to unsettle the masses all at once, the kind bureaucrats figured that a three-step implementation program was necessary to collect their dinero. The phase-in schedule goes like this:
- 1/3 rate increase from Oct. 8, 2007 to Dec. 31, 2008
- 2/3 rate increase from Jan. 1, 2009 to Dec. 31, 2009
- Full rate increase from Jan. 1, 2010 to Dec. 31, 2010
But depending on the tipped position, some employees can qualify for a 10- to 20-percent discount off this rate. So if you’re not a smokin’ hot waitress at some ultra lounge but rather Esther the waitress at the casino diner, the IRS demonstrates sympathy and only taxes you at $22.40 come 2010 versus $28. You see, the IRS does have heart.
Employees can opt out of the compliance program or quit after opting in. But beware. Employees who do this will lose any audit protection they may have had for the entire year if deciding not to participate at any point during the year. They will also not be able to become participants again until January 1 of the year following the year they terminate participation. In addition, they lose the benefit of the rate phase-in and any coverage adjustment for years in which they are non-participants.
All gaming properties are required to report annual data to the IRS on all employees who decide not to participate in the tip compliance program. The IRS may attempt to “computer-match” the annual data for non-participants to their reported tips and send notices of tax deficiency to employees reporting at less than the designated rates for the position, shift and outlet, without applying the benefit of the rate phase-in or coverage adjustment.
These consequences may sound frightening, but remember the IRS has heart. Even they know that tip levels can’t always be as good as $28 an hour. That’s why if business levels dramatically change like they did after 9/11, approved rates for each tip compliance position may be modified by the IRS due to a significant drop in revenues.
The truth is that the quality of life for hospitality workers seemed too good to be true for the IRS. So they are fixing that problem beginning Oct. 8. At least we can rest assured that they are doing it with heart. LW
