Dear Food & Beverage Association Members,
As part of our effort to keep you updated and informed concerning issues effecting your business we are sending you this just issued IRS, Tips update. F&BA Allied Member Marshall Varano, JH Cohn LLP, provided this update
F&BA Member "Hot Line" for answers to operations questions including HR, Licensing, Regulatory, Enforcement is always available by email or phone to our office.
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Rev. Rul. 2012-18, Internal RevenueService, (Jun. 21, 2012)
2012FED ¶46,386
Code Sec. 45B, Code Sec. 3401, Code Sec. 3402, Code Sec. 6053
FICA taxes: Tax credits: Tips: Service charges
Section 3121 —Tips Included for Both Employee and Employer Taxes
Rev. Rul. 2012-18
The purpose of this revenue ruling is to clarify and update guidelines first presented in Rev. Rul. 95-7, 1995-1 C.B. 185, concerning the taxes imposed on tips under the Federal Insurance Contributions Act (FICA) and the notice and demand under section 3121(q) of the Internal Revenue Code (Code).
Sections 3101 and 3111 of the Code impose FICA taxes on employees and employers, respectively, equal to a percentage of the wages received by an individual with respect to employment. FICA taxes consist of two separate taxes, the Old Age, Survivors, and Disability Insurance (social security) tax and the Hospital Insurance (Medicare) tax. The amount of wages subject to social security tax is limited by an annual contribution and benefit base; however, all wages are subject to Medicare tax.
Section 3121(a) of the Code defines “wages” for FICA tax purposes as all remuneration for employment, with certain exceptions. Section 3121(a)(12)(A) excludes from the definition of wages tips paid in any medium other than cash; section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee's employment by an employer unless the amount of the cash tips is $20 or more.
Employer FICA Obligations . Under section 3121(q) of the Code, tips received by an employee in the course of the employee's employment are considered remuneration for that employment and are deemed to have been paid by the employer for purposes of the employer share of FICA taxes imposed by sections 3111(a) and (b), that is, social security tax and Medicare tax, respectively. The remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section
6053(a) , discussed below.
Section 3111 of the Code requires the employer to pay social security tax on the amount of cash tips received by the employee up to and including the contribution and benefit base as determined under section 3121(a)(1) and to pay Medicare tax on the total amount of cash tips received by the employee. However, if the employee either did not furnish the statement pursuant to section 6053(a)or if the statement furnished was inaccurate or incomplete, in determining the employer's liability in connection with the taxes imposed by section 3111 with respect to the tips, section 3121(q) provides that the remuneration is deemed, for purposes of subtitle F (Procedure and Administration), to be paid on the date on which notice and demand for the taxes is made to the employer by the Internal Revenue Service (Service).
Employee FICA Obligations. Under section 3121(q) of the Code, for purposes of the employee share of FICA taxes imposed by sections 3101(a) and (b), tips that are properly reported to the employer pursuant to section 6053(a) are deemed to be paid at the time a written statement is furnished to the employer pursuant to section 6053(a) . Unreported tips received by the employee are deemed to be paid to the employee when actually received by the employee.
Section 6053(a) of the Code requires every employee who, in the course of the employee's employment by an employer, receives in any calendar month tips that are wages (as defined insection 3121(a) for FICA tax purposes or section 3401(a) for income tax withholding purposes) to report all those tips in one or more written statements furnished to the employer on or before the 10th day of the following month. The employee is to furnish the statements in the form and manner prescribed by the Service.See §31.6053-1(b) of the Employment Tax Regulations.
