Fixed Gratuities No Longer Considered Tips

Published: 02/04/2014

WASHINGTON — Under a new Internal Revenue Service rule effective Jan. 1, automatic gratuities added by restaurants to the checks of large parties no longer are considered tips.

Fixed gratuities are defined as service charges under IRS Rule 2012-18. As such, they are considered part of a server’s wages, unlike a tip, which is not part of an employee’s wages. Under the rule, fixed gratuities must go through the establishment’s payroll system and cannot be included in tips that are cashed out at the end of servers’ shifts.