IRS Proposes New Service Industry Tip Reporting Program

The Treasury Department and IRS issued Notice 2023-13 for the Service Industry Tip Compliance Agreement (SITCA) program, a proposed voluntary tip reporting program between employers and the IRS.

The proposed SITCA program is intended to improve tip reporting compliance by taking advantage of advancements in point-of-sale, time and attendance systems, and electronic payment settlement methods. The proposed program would also decrease taxpayer and IRS administrative burdens and provide more transparency and certainty to taxpayers.

SITCA program features include:

• The monitoring of employer compliance based on actual annual tip revenue and charge tip data from an employer’s point-of-sale system, and allowance for adjustments in tipping practices from year to year.
• Participating employers must submit an annual report after the close of the calendar year, which reduces the need for compliance reviews by the IRS.
• Participating employers receive protection from liability under the rules that define tips as part of an employee’s pay for calendar years in which they remain compliant with program requirements.
• Participating employers have the flexibility to implement employee tip reporting policies that are best suited for their employees and their business model in accordance with the section of the tax law that requires employees to report tips to their employers.

The SITCA program would replace the Tip Rate Determination Agreement (TRDA), Tip Reporting Alternative Commitment (TRAC), and Employer designed TRAC (EmTRAC) for employers in service industries. It does not impact the existing Gaming Industry Tip Compliance Agreement (GITCA) program.

Employers with any of these existing agreements would remain in effect until the earlier of the employer’s acceptance into the SITCA program; an IRS determination that the employer is noncompliant with the terms of their TRDA, TRAC, or EmTRAC agreement; or the end of the first full calendar year after the final revenue procedure is published in the Internal Revenue Bulletin.