Optima Tax Relief Explains Proposed Service Tip Reporting Program

The U.S. Treasury Department and IRS issued a notice that introduced a new service industry tip reporting program. Optima Tax Relief explains the proposed program.

The IRS and Treasury Department are hoping to roll out a new revenue program called the Service Industry Tip Compliance Agreement (SITCA), in which employers in service industries would voluntarily report service tips to the IRS. The program would monitor employer compliance based on actual tip revenue and the data from the employer’s point-of-sale system. The IRS is hoping that employer cooperation would reduce the need for IRS compliance reviews.

The IRS also hopes that the SITCA program will serve as the sole tip reporting program for employers in the service industry, thus replacing the current programs in place including Tip Rate Determination Agreement (TRDA), Tip Reporting Alternative Commitment (TRAC), and Employer designed TRAC (EmTRAC). The current Gaming Industry Tip Compliance Agreement (GITCA) would remain in place as the IRS is still reviewing options for the gaming industry. The current agreements in place will expire upon the earliest of the following scenarios:

• The employer is accepted into the SITCA program
• The IRS determines the employer is not compliant with their current agreement
• The end of the first year after the final revenue procedure is completed

Once an employer is accepted into the SITCA program, they must annually confirm that they are meeting minimum reporting requirements. If they cannot confirm, they will be removed from the program for at least three calendar years.

To participate in the SITCA program, an employer must meet the following requirements:

• Must be an employer in the service industry where employees perform services for customers that are subject to tipping
• Must have at least one establishment
• Must be compliant with federal, state, and local tax laws for three completed years immediately preceding the date of the application

The IRS is requesting comments on the proposed program, especially those concerning the technology of the program, how the IRS will handle different tip sharing practices across the industry, and how employers can fulfill their requirements for compliance without adding administrative burdens.