The IRS classifies adding gratuity to any party of six or more as a “service charge” and subject to income tax withholding. They claim guests are forced to pay the gratuity amount.
Gratuity is added for the guest’s convenience and it clearly states that the restaurant can modify or remove the added gratuity upon the guest’s request.
Restaurants have removed gratuity all together to avoid the extra cost and paperwork.
Unfortunately, many people do not know that tipped employees make as low as $2.13/hr and rely entirely on tips. Restaurants force servers to pay up to 15% of their sales, not tips, to food runners, bussers, hostesses and bartenders even if the table does not tip. Many times servers have to pay out of pocket.
This ruling has negatively impacted the finances of many families.
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