Automatic Tips May Be Taxed Out Of Existence

Those automatic gratuities that restaurants add onto the bill for large parties are about to get different tax treatment, and that's causing some eateries to rethink their practices. In 2012, the IRS issued new guidelines that said automatic gratuities will be treated as a service charge starting in 2014. That means they'll have to be accounted for as wages for servers, many of whom aren't happy about having to wait for a paycheck to get the money. Restaurants aren't happy either, mainly because of the extra paperwork and the fact that the new rules put the autotips in a completely different category that managers will have to explain to employees. Darden (NYSE:DRI), which owns Olive Garden, LongHorn Steakhouse and Red Lobster, is experimenting with eliminating its autotips. "I think the vast majority of restaurant owners will discontinue the practice," said Denise Wheeler, an employment attorney who represents restaurant chains. Story