LAS VEGAS (KLAS) — One of the biggest questions following President Donald Trump’s spending bill centers on automatic gratuities, those mandatory service charges often tacked onto large restaurant parties.
The law promises “no tax on tips,” but does that cover automatic charges?
“I don’t think we should be taxed at all. We already get taxed on our paychecks, so why are we getting taxed on our tips?” Anthony Henry, a bartender at Lo-Lo’s Chicken and Waffles, said.
Restaurants must withhold income and payroll taxes on those charges, and workers won’t be able to claim the new “no tax on tips” deduction on that portion of their pay.
So, while cash tips, credit card tips, and pooled tips may qualify for the new tax break, automatic service charges do not. For servers and bartenders, that could mean two workers on the same shift, doing the same work, end up taxed differently depending on how the customer pays.
At Pinches Tacos, Javier Anaya said the law creates uncertainty for business owners trying to follow the rules while also supporting their staff.
“The way it was presented, with no tax on tips it gave a lot of people hope. Remember, you could be a waiter and bartender here in Vegas and would be able to buy a house. I mean, that was the dream. You can have an average job and makes great tips, but now it’s not enough,” Anaya said.
Currently, the IRS requires workers to report tips of $20 or more each month, whether it’s cash, credit card payments, or pooled gratuities among employees.
Nerida, a waitress at Pinches Tacos, is a single mother of three. She says in this economy, every dollar matters.
“We don’t want to be so pushy, but it does help us because we are only getting paid an hourly wage here, so it’s does help when they leave a tip we can take home,” Nerida said.
With more guidance expected from the IRS later this year, both restaurants and workers will be watching closely to see how much of their income truly qualifies as tax-free.
According to Square, a technology services company, the average tip at restaurants, cafes, and bars dropped to 14.99% in the second quarter of this year, down slightly from the first quarter.
