When a Fee is a Fee and a Tip is a Fee …
Effective January 1, 2014, IRS Revenue Ruling 2012-18 provides restaurants guidance concerning the use of automatic gratuities, or 'service charges' charged on the basis of table size. Generally, gratuities are not includable in the income of the establishment and are reported separately by employees. The revenue ruling states that 'auto grats' are considered fees collected by the restaurant and should be included in income. The resulting pay-out to employees should be added to wages and taxed accordingly. The revenue ruling defines a gratuity as one which is paid out subject to the following: the payment must be made free from [...]