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PoliticsOL.com Editorial - Week of April 29, 2001
Stop Taxing Tips
Think back to the last time your family ate out for dinner at a nice restaurant. Perhaps you were pleased with the meal and the
service. For the sake of argument, let's say your bill came to $100.
In appreciation for the excellent service you received by your waitress, you decided to give a 20% gratuity that night. You then left $15 on the table and the next day mailed a check to the U.S. government for the remaining $5.
No? Didn't occur quite that way? Think again.
For nearly twenty years, the IRS has required restaurant employers to keep detailed records of their employees' tips. Restaurants must then set a minimum amount -- 8% of their gross receipts -- which its waiters and waitresses must then report
to the IRS as income.
As a result, the restaurant industry estimates that its employees pay an extra $2,700 annually each in taxes to the IRS, totaling perhaps as much as $3 billion in 1998. Furthermore, the IRS assumes service employees to have made at least 8% of
their gross sales in tips -- even if they don't. After all, many restaurant servers share their tips with backup personnel. And they, too, must report their share of tips as income to the IRS.
Americans, by law, are permitted to give any individual gifts of up to $10,000 each per year for which the receipient is not required to pay tax on. But, give the paperboy a $20 tip at the end of the year and he'll be a tax cheat unless he reports the tip to his newspaper and has estimated income, Social Security and
Medicare taxes deducted from it.
Representative Duncan Hunter (R-Calif.) has introducted legislation to protect service employees' tips from the hands of the IRS. H.R. 1274 would amend the Internal Revenue Code of 1986 to provide that tips received for certain services shall not be subject to income or employment taxes.
The legislation would cover those serving in restaurants, newspaper deliveries, shoe shine services, recreation, taxi drivers, hotels, recreation and cosmetology -- excluding the first $10,000 in annual tips from gross income for income tax
purposes.
Waitresses and waiters favor the bill, as do many restaurant groups (as the bill cuts down on the paperwork on tips they'd otherwise have to maintain). As Hunter points out, most of the employees that will be helped by his bill are either students or single mothers. For many, it is the first job they've even had.
Amazingly, the bill had only eight other co-sponsors as of last week.
Many members of Congress often fondly recall their days of toil in the service industry in their biographies and in town hall events when attempting to portray themselves as sympathetic to the millions of Americans working for the minimum wage. But, for most of those Members that did work as paper deliverers, grocery baggers, waiters or bellhops, they did not have to pay taxes on their tips. Neither, now, should their constituents.
It's time for the federal government to treat a tip for what it is -- a gift.
PoliticsOL.com reserves the right to shorten or to edit letters for clarity. Only signed letters will be considered for publication. (i.e., include name, city & state of residence)
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