Supreme Court OKs IRS to estimate tips.

June 18, 2002 9:29 AM

Supreme Court OKs IRS to estimate tips. The IRS can now use estimates of employees' tips in its calculations of what businesses owe in payroll taxes (the dreaded FICA), the Supreme Court said yesterday. The estimates of cash tips -- which are nearly impossible to track directly -- can be based on recorded credit card tips. The IRS said they don't plan to audit servers themselves -- but the effect on restaurants could be chilling. "Seven out of 10 restaurants are small businesses, many of which operate with slim margins. Quite frankly, this decision could mean the difference between a restaurant staying in business or closing its doors," said Peter Kilgore, general counsel and senior vice president of operations for the National Restaurant Association in Washington.
posted by me3dia (27 comments total)

I don't work for tips anymore, but if did I'd be worried about this. It's practically a blank check for the IRS.

As it is, it could be used as a first step toward making audits of servers' true income easier. If they can guess at what the restaurant shoud pay, why not guess what its employees should pay, too?
posted by me3dia at 9:36 AM on June 18, 2002

And to think they were considering repealing the corporate alternative minimum tax. Well, now they can go after the real boondogglers, those lazy waiters and cooks.
posted by Ty Webb at 9:42 AM on June 18, 2002

It's about time the compensation system for restaurant employees was brought out of the 19th century. This is a rough way to begin the transition, though.
posted by Mars Saxman at 9:52 AM on June 18, 2002

the problem here is that people like hosts, or waiters who also deal with take-out customers (jobs that don't get tipped 15%) will be screwed.

but why would that be of any concern to the IRS?
posted by tsarfan at 9:56 AM on June 18, 2002

As if it didn't suck enough already to be waitstaff... I predict a shortage of staff like this. Why get paid below minimum wage if the IRS can tally tips? Maybe the system needs a change.
posted by krewson at 10:25 AM on June 18, 2002

"I predict a shortage of staff like this."

I predict higher base salaries for waiters and waitresses to prevent shortages.

Come on, this isn't so awful. tips are income, without which restaurants would have to pay waitstaff a lot more and be subject to FICA anyway. A peculiarity in how a person is compensated shouldn't affect how much tax they owe. Plus, with all Bush's tax cuts, the gov't needs all the revenue it can get, particularly for programs like Medicare and Social Social Security which FICA finances.
posted by boltman at 10:38 AM on June 18, 2002

K. Let's follow the higher salaries idea. Then prices get higher, and restaurants close. That's also assuming the conglomerates which own large restaurant chains (the Olive Gardens, TGI Fridays, Red Lobsters and Fuddruckers of the world) miraculously decide to pay folks a decent living wage. Either prices go up or the quality of food goes down, and all American restaurants start to look like McDonalds.
posted by krewson at 10:41 AM on June 18, 2002

unless you can make an argument that tips are somehow not part of a waitperson's compensation, allowing restaurants to avoid FICA payments on tips amounts to little more than a tax subsidy for restaurant owners. in addition, to the extent that social security payments reflect the amount individuals pay into the sytem over their lifetime, the restaurants are actually ripping off the workers, not helping them.
posted by boltman at 11:21 AM on June 18, 2002

This is what will happen: smaller restaurants will stop accepting credit cards altogether like they've wanted to anyway, larger ones will begin instituting a "service compris" model that rolls tips into the bill from the get-go.

And if the numbers get too far out of line....wow, the spill tab sure was huge tonight!

This should have happened long ago. I want to collect Social Security based on my total income, not the piddling amount I got paid by the house.

For years, I figured my annual cash tips as a percentage of credit card sales, and reported it on my taxes (so I'm an idiot, but I'm an honest idiot). This doesn't seem so different.
posted by BitterOldPunk at 12:33 PM on June 18, 2002

[catastrophic derail]
BitterOldPunk - Do you really do financial planning based on getting Social Security benefits?

I don't know anyone 30 or under that thinks Social Security is anything but a flaming pit they're forced to throw greenbacks into.
[/catastrophic derail]
posted by NortonDC at 5:42 PM on June 18, 2002

Social Security is a flaming pit. I do not wish to collect it, I wish to opt out of it. The whole "You should be happy you are getting screwed" thing falls flat.
posted by thirteen at 6:02 PM on June 18, 2002

This is why people lie to the IRS every year.

Expect more of the same. If you operate on cash alone, it's a lot easier to cook your books. Maybe restaurants will start operating on cash. If all of them lie about their budgets, the IRS is screwed.

It also makes a lot of sense to tax businesses, since they pass on the cost to the customers. I like taxes, I hope one day, the government takes ALL of my income, so I can live in their safe, secure workers paradise. Take me, I'm ready!
posted by insomnyuk at 10:38 PM on June 18, 2002

Social Security is a flaming pit.

As flaming pits go, it's an amazingly successful program that has worked for decades. The only real threats to turn it into a flaming pit for real has been A) the Bush tax plan (and others like it), and B) dittoheaded tools like yourself who buy into the conservative agitprop about how "bad" Social Security is and how "inefficient" the government is. It's a great tactic: if you want the people to revolt against taxes in general so they'll be more likely to support a tax cut for the rich- directly or indirectly- you have to start by attacking or smearing the most successful programs, as opposed to the true government waste: scrap the ones that work, like Medicare or Social Security, and that will leave Joe Average feeling like he's getting no bang for his buck and the government is inefficient.

Popular support for Social Security is overwhelming; convincing young people that the system is failing and won't pay them, as well as deliberately trying to bankrupt the system so it does fail, are the surest ways to get people to simplistically think of gov't as only a money-sucking black hole. Voila! It's then short work to get those voters to buy into a tax cut (which will of course happen to be for the richest of the rich) that will only worsen their experience of government working for "the people", but will do absolute wonders for the morale of the very rich in regards to how government is functioning.

I like taxes, I hope one day, the government takes ALL of my income, so I can live in their safe, secure workers paradise. Take me, I'm ready!

Geezus, you're a twit. Go start a MeTa thread if you want, but before you do: if you would be so kind, please throw a splash of paint on your front door so the police and fire department know which "But mommy, I don't like taxes" house to skip in case of emergency.
posted by hincandenza at 1:25 AM on June 19, 2002

This is another brilliant and shining example of why it's time to kill the inefficient, money sucking beast which is the federal income tax system altogether. Why people continue to believe that the federal government has any business in your paycheck, in your bank accounts, in your investments, in your property and in your life confounds and amazes me.
posted by Dreama at 4:30 AM on June 19, 2002

Jesus, hincandenza, you really might want to go back and read any of my several rapturous defenses of progressive taxation, find my attitudes toward Reagan, Clinton and Bush, and information about how I conduct my personal life before you call me a "dittohead." That really undercuts the credibility of your post.

And as far as popular support, the notch babies may all be in favor of their little cause, too, but that doesn't mean that they deserve it or that the government will cave.
posted by NortonDC at 4:46 AM on June 19, 2002

but before you do: if you would be so kind, please throw a splash of paint on your front door so the police and fire department know which "But mommy, I don't like taxes" house to skip in case of emergency.

If it meant I didn't have to pay taxes ever again, I would certainly skip on the government's emergency services. Thanks.
posted by insomnyuk at 6:33 AM on June 19, 2002

Hincandenza: tell me why I should be forced to pay into Social Security? I don't want to pay into Social Security, and I don't want the government to give me Social Security checks when I'm old. I don't want them to retire for me, and I don't want their goddamned safety net. I don't care if its popular with people who like welfare or wealth redistribution. The state has already decided that I cannot be responsible for myself, or suffer the consequences if I fail.

how "bad" Social Security is and how "inefficient" the government is.

You think the goverment ISN'T innefficient? You think anyone who has a legitimate opposition to the government on the grounds of innefficiency and fraud is an unthinking dittohead? Wow. Maybe you should read this, or this. That's a 6.8 % fraud rate, down from the mid 90s. Any publicly traded company that was party to this kind of fraud would be done for. But if its the government, we respond by giving them more money. Every cent you pay in FICA is spent, it's not saved. Do you honestly think the moneygrubbers in Congress could keep their hands off of it? Still don't think the government is literally burning your money to power their expensive apartments? Try working for them.
posted by insomnyuk at 7:07 AM on June 19, 2002

Ty: I love the title of that article you linked to

"Should Big Corporations Be Exempt from Helping Pay for the War on Terrorism?." How droll. It's always the Big boogeyman... Big Tobacco, Big Oil, yadda yadda yadda. What about Big National Education Association, or Big Union? I think the Simpsons episode on Big Sugar covers the issue pretty well.

I just have one question for you: do you think its unpatriotic or immoral for American businesses to move their corporate headquarters to Bermuda so that they don't have to pay the U.S. government taxes on their international business?
posted by insomnyuk at 7:21 AM on June 19, 2002

just have one question for you: do you think its unpatriotic or immoral for American businesses to move their corporate headquarters to Bermuda so that they don't have to pay the U.S. government taxes on their international business?

May I answer that one? Thanks.

YES, especially considering the drain these corporations are on the infrastructure of the country in which they make the preponderance of their profits. Many of these corporations make lots of money from government contracts also. You enjoy the benefits of doing business in the US, you pay the fiddler. And the benefits FAR outweigh the costs. Have you seen the $748 million in nontaxable profits/income the top Enron execs got in the past year from their little offshore tax haven? Can YOU justify that?
posted by nofundy at 8:25 AM on June 19, 2002

Nofundy: even if they have their corporate headquarters in Bermuda, they still have to pay taxes for business they do in the states, which means that "You enjoy the benefits of doing business in the US, you pay the fiddler" still happens.
posted by insomnyuk at 8:56 AM on June 19, 2002

dittoheaded tools like yourself who buy into the conservative agitprop about how "bad" Social Security is and how "inefficient" the government is.

Dittoheaded? I would imagine those sorts would not like me any more than you seem to. I am interested in a fair system, which I do not believe you are. I also believe I am alowed to believe any damn thing I want about the government, and I believe this involuntary system is unfair. I have searched out every legal, proper way to be free of this ponzie scheme that you love so and since there is none, I do support the destruction of the system. You want to protect it for your old age? Let the unwilling out. You want to see a tool, look in the mirror.

I can appreciate that you are scared, but I do not intend to live my life based on what is best for you.
posted by thirteen at 9:10 AM on June 19, 2002

I am not a Conservative, and certainly not a Dittohead. I hate Social Security, though.

if you want the people to revolt against taxes in general so they'll be more likely to support a tax cut for the rich- directly or indirectly- you have to start by attacking or smearing the most successful programs

That's interesting that you would say this. Social Security is a tax on the poor. It's a regressive tax that extracts more (in percentage terms) from the minimum wage worker than it does from the six-figure-income salesman with a four-car 4000 square foot house. If you are truly going to argue against "tax cuts for the rich" then you need to address the failures of Social Security on this issue.

the ones that work, like Medicare or Social Security

I suppose the definition of "work" may differ. Social Security and Medicare may do what they set out to do, and thus "work", but that doesn't make them fair, that doesn't make them efficient. It certainly doesn't make them the best solution to the problem. Social Security was designed to be a system that would be nearly impossible to get rid of precisely because of the politics of it. Social Security is the worst investment I could possibly make, and guess what, I'm forced to! FICA and Medicare amount to a nearly 15% tax on all income below $80,000. The rich pay less. The uber-rich who make most of their money on capital gains pay nothing! You call that successful and fair? I don't.

Popular support for Social Security is overwhelming

Well, I certainly would expect to see a nice big check coming my way after forty-five years of working my ass off, depositing 15% of my paycheck every month into a system that will most likely give me a negative return on that investment.

But since when does popular support have anything to do with what's fair or right or especially what's a good investment?
posted by daveadams at 9:51 AM on June 19, 2002

I think we should just eliminate corporate income taxes all together. seriously. let them operate tax free and have the feds make up the lost revenue through capital gains taxes on investors. it would induce industry to stay in the U.S. and it would be far more progressive. companies could create more jobs, wealth disparities would be reduced since capital gains largely targets the wealthy, and you wouldn't have this huge problem of tax avoidance by corporations through tax shelters and accounting gimmicks which currently costs taxpayers billions.

as far as the merits of social security and medicare go, you can say what you want about unfairness and regressivity but you can't deny that they have greatly reduced poverty among the elderly. do we really believe that elderly people that have been unable to amass any private wealth should be abandoned to squalor and premature death once they retire? certainly it would be more efficient for us to do so and we would all be able to keep a lot more of "our own money." But it hardly seems humane or socially responsible. Like it or not, we live in a community, and that means we have to share some of our personal wealth for the greater good.

oh, and the arguments about insolvency are a load of crap. i hate to break it to you but you are not "investing" in your own retirement when you pay FICA. you are paying for your parents and grandparents retirement just as your children and grandchildren are going to be obligated to pay for yours. demographic shifts mean that some generations are going to wind up paying more than others, but there is no impending crisis in Social Security or Medicare unless you assume that FICA, benefits, and eligibility age are fixed in stone. they're not and they will be adjusted when it becomes necessary to do so. to be sure, there are things we can do now that will reduce the need for adjustments later, like investing some of the trust fund in the market, but the system as a whole is in no danger (except from conservative politicians of course)
posted by boltman at 9:34 PM on June 19, 2002

you can say what you want about unfairness and regressivity but you can't deny that they have greatly reduced poverty among the elderly.
It is hard to argue with a man who loves his unfair situations. I would not try and argue that the SS has not changed lives, any more than I would argue a burgler's life is not improved by the things he steals. If you want to talk about being humane and socially responsible, try not being a burden on society, run your own damn life so you don't have to leech.

Like it or not, we live in a community, and that means we have to share some of our personal wealth for the greater good.

That is a nice definition, I assume it is yours. unfortunately that definition is not set in stone either, and I do not feel bound by it any more than you would by anything I just made up. A community can be any number of things, and does not have to be the oppressive thing you are so happy with.

you are paying for your parents and grandparents retirement just as your children and grandchildren are going to be obligated to pay for yours.
Why worry about getting screwed, when there is the promise of screwing someone else even worse. The basic premise was a bad idea. I do not lay obligations on people. An obligation is a situation you enter into freely (unless you want to twist another definition). What you are talking about is more like slavery. I do not care about how sound the system is. There is no reason this has to be an oppressive program, what would be so wrong with letting people opt out? If you have to force people to stay in, who is serving who?
posted by thirteen at 8:18 AM on June 20, 2002

do we really believe that elderly people that have been unable to amass any private wealth should be abandoned to squalor and premature death once they retire? certainly it would be more efficient for us to do so and we would all be able to keep a lot more of "our own money." But it hardly seems humane or socially responsible.

boltman, arguing against Social Security's implementation is not the same as arguing against its goals. As I stated in my previous post, just because Social Security works how it was designed doesn't mean that its design was the best solution to the problem.

oh, and the arguments about insolvency are a load of crap.

Funny, I didn't see anyone discussing this.

i hate to break it to you but you are not "investing" in your own retirement when you pay FICA. you are paying for your parents and grandparents retirement just as your children and grandchildren are going to be obligated to pay for yours.

This is precisely my problem. The justification behind making it a regressive tax and having even the lowest income workers pay 15% of their income into it every month is that you are funding your own retirement. However, in reality, it's just a tax to pay for current expenses, conveniently worded to extract far more from the poor than the rich. We're taxing the poor to pay benefits to the poor. That's pretty dumb, and I would think someone who supports the concepts behind Social Security would feel even more strongly about that than I do.
posted by daveadams at 9:52 AM on June 20, 2002

The justification behind making it a regressive tax and having even the lowest income workers pay 15% of their income into it every month is that you are funding your own retirement.

this is less of a problem now that we have the Earned Income Tax Credit, which refunds most of the money that the working poor pay into FICA.

If I were dictator of the US, I would change how SS and Medicare are funded to make it more progressive. But the reality is that FICA is essential to the political vialbility of the program. people want to feel like they are "investing" rather than subsidizing. I am quite sure that as long as we have SS and Medicare, we're also going to have FICA. I think its also important that eligibility extends to everyone regardless of income. This prevents it from being demonized as a "welfare" program and it provides a sense of social solidarity in our far too individualistic culture.

thirteen: thankfully, the vast majority of the country does not agree with your scornful view of the low-income elderly. so, really, you are "bound" by my view in the legal sense, since it is also the vision behind the current system.

also, it's worth remembering that in order to get social security, you actually have to have actually worked for at least 10 years of your life. so, by definition, the people that recieve social security are people that have contributed to society in some way.
posted by boltman at 2:51 PM on June 20, 2002

you are "bound" by my view in the legal sense, since it is also the vision behind the current system.
This is not news to me. Time will tell, and I suspect your majority will wither sooner than you think. You are missing my repeated point that the existence of SS is not my concern. My problem is that I am forced to participate against my will (short of becoming a minister and taking a vow of poverty). I do not hate the low income elderly, nor do I feel responsible for them. Even if I shared your opinions, I would find the plan as is immoral.

This prevents it from being demonized as a "welfare" program and it provides a sense of social solidarity in our far too individualistic culture.
It is by definition a welfare program. Obviously our culture is not individualistic enough.
posted by thirteen at 3:37 PM on June 20, 2002