Advertisement
spending

Mandatory Tips Are Off the Menu

A new tax ruling means diners will decide how much service is worth.

Diners are sometimes surprised (and maybe frustrated) by gratuities that are automatically tacked on to their tabs. The practice — common at restaurants for large parties — has lately been expanding to include parties of any size, particularly at upscale restaurants and those frequented by tourists.

Now those mandatory tips are on the way out, thanks to an IRS ruling that takes effect in 2014. It classifies automatic gratuities as service charges, which are treated as wages rather than tips. The waiter will be taxed the same, but the restaurant will lose the special tax credit available for paying its share of payroll taxes on tip income. Diners are more likely to see suggested sample gratuities on their bills — say, 15%, 18% or 20% — leaving the final amount to their discretion.

Advertisement - Article continues below

Policies are likely to change elsewhere, too. Fox Rothschild lawyer Carolyn Richmond, who advises hotels, suspects that overnight guests and bar and banquet hall patrons will also see language that strongly suggests gratuities but doesn’t impose them.

Whether the ruling puts a dent in auto tipping on cruise ships remains to be seen because many ships are based outside the U.S. Currently, the norm is to apply a daily gratuity of $10 to $12 to travelers’ accounts. But the purser’s office will usually let you tip the old-fashioned way if you ask.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

Sales Tax Holidays in 2020
state tax

Sales Tax Holidays in 2020

Sixteen states are having sales tax holidays this year. If you plan your shopping around these tax-free periods, you can save big on back-to-school cl…
July 1, 2020
13 Luxury Goods That Are Cheaper at Costco
spending

13 Luxury Goods That Are Cheaper at Costco

You could be missing out on huge savings: Costco sells a limited selection of luxury goods at discounted prices, both in-store and online.
June 27, 2020
COVID-19: A Once-in-a-Lifetime Chance to Change Our Spending Habits
spending

COVID-19: A Once-in-a-Lifetime Chance to Change Our Spending Habits

The coronavirus pandemic has changed everything, including how we spend money. Are you spending less right now? Many people are. Here’s how to make th…
June 17, 2020
24 Best Travel Websites to Save You Money
spending

24 Best Travel Websites to Save You Money

Traveling is fun and you can do it without breaking the bank — you just have to know where to go online first.
June 12, 2020