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IRS Eyes Implementing New Tipping Program

On February 7, 2023, the IRS published Notice 2023 – 13, which announced a new proposal called the Service Industry Tipping Compliance Agreement (SITCA) program. SITCA’s aim is to streamline tipping procedures and how employers monitor tipping practices. 

According to the IRS’s release on the Notice, if adopted, SITCA would serve as the sole tip reporting compliance program for employers in various service industries and would replace several programs including: (1) Tip Rate Determination Agreement (TRDA); (2) Tip Reporting Alternative Commitment (TRAC); and (3) Employer designed TRAC (EmTRAC). SITCA does not involve changes to the Gaming Industry Tip Compliance Agreement (GITCA) program.

As noted, SITCA is currently a proposal and is open for public comment through May 7, 2023. Some notable features which SITCA would implement include: 

  1. Ability to monitor actual annual tip revenue and charge tip data from an employer’s point-of-sale system, and allowance for adjustments in tipping practices from year to year;
  2. Annual compliance reporting requirements, which would reduce compliance reviews by the IRS;
  3. Liability protection under the rules that define tips” as part of an employee’s pay for calendar years in which they remain compliant with program requirements; and
  4. Flexibility to implement certain employee tip reporting procedures which are tailored to business needs.

Employers that currently utilize the TRDA, TRAC, or EmTRAC programs can continue to utilize them until the earlier of the following: 

  1. The employer’s acceptance into the SITCA program;
  2. An IRS determination that the employer is noncompliant with the terms of their TRDA, TRAC or EmTRAC agreement; or
  3. The end of the first full calendar year after the final revenue procedure is published in the Internal Revenue Bulletin.

    Given the recent changes to tipping practices and regulations in the past several years, we encourage employers to reach out to a Boardman Clark attorney with questions. 

    DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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