In his state of the union address this week, President Joe Biden doubled down on a mantra that no one earning less than $400,000 a year would pay new taxes. But the administration’s Internal Revenue Service quietly rolled out a new program to single out tipped restaurant workers to pay more taxes on tip earnings.
The IRS released a proposal for public comment on a new program that would “improve tip reporting compliance” to ensure more tips are reported as income, and taxed accordingly.
The program, called the Service Industry Tip Compliance Agreement (SITCA), seeks to use point-of-sale and electronic payment technology to track tip income received by service employees. Employers would be required to submit an annual report on tips received through these systems. This ultimately opens up employees’ tip income to IRS scrutiny and taxation.
Lawmakers rushed to voice their opinion on the proposal this week:
Hey, Mr. President, do restaurant servers make over $400,000 a year? https://t.co/uqwTbRX5JS
— Rand Paul (@RandPaul) February 9, 2023
Think the government surveilling your $600 Venmo transaction was invasive? Looks like the Biden administration wants to take things even further! The IRS is trying to deploy a new system to surveil waiters’ tips too. 👇https://t.co/lo6Nd2Qkgm
— Tom Emmer (@GOPMajorityWhip) February 8, 2023
The IRS’s new army of auditors has its fingers in the tip jar of hardworking waiters and waitresses.
— Joni Ernst (@SenJoniErnst) February 8, 2023
How many waiters and waitresses are making more than $400K per year Mr. President?
IRS proposes new reporting program for tips in the service industry: “to improve tip reporting compliance” https://t.co/D2MZucZRLy
— Thomas Massie (@RepThomasMassie) February 9, 2023
While the proposed program states that participation is voluntary, the IRS official announcement states participation in the program would grant protection from liability for taking a tip credit and counting tips towards minimum wage requirements. Currently, the federal Fair Labor Standards Act legally allows employers to take a tip credit as long as employees earn regular tips that amount to at least the $7.25 hourly minimum wage.
The Biden administration has vocally opposed the tip credit system that currently allows tipped service employees, many in the restaurant industry, to earn well beyond the minimum wage. President Biden championed the Raise the Wage Act in 2021, which would have eliminated the federal tip credit, and failed when a bipartisan group of lawmakers voted against the bill due to the harm it would cause tipped restaurant employees.
Now, the administration is using its IRS resources to go after employees’ tips instead of larger, prevalent issues of tax fraud.