What Is The New IRS Service Industry Tip Reporting Program?

The Internal Revenue Service issued a notice this week detailing a proposed Service Industry Tip Compliance Agreement (SITCA) program that would enable the IRS to better receive voluntary tips from employers in specific service industries. Until early May 2023, the IRS is providing the public an opportunity to comment on the proposal.

What Is SITCA?

The proposed program would improve tip reporting compliance through the use of various point of sale and electronic payment settlement methods. It is expected that the proposed program would decrease financial burdens on taxpayers and IRS administration while also providing added transparency and confidence for taxpayers.

Features of the proposed SITCA program include:

Monitoring employer compliance based on financial information from the employer’s point of sale system, using actual annual tip revenue and other data.
Allowance for changes in tipping practices from year to year.
Employers would submit an annual report at the end of each calendar year |demonstrating their compliance. This would reduce the need for compliance reviews by IRS employees.
Protection from liability under the rules that define tips as a part of employee compensation in the calendar year(s) in which the employer remains compliant.
Flexibility for employers to implement tip reporting policies that they believe are most beneficial for their employees and their business model, provided that their policies are in accordance with tax law related employee reporting of tips.

What Programs Would SITCA Replace?

If it is enacted, the IRS intends SITCA to become the exclusive tip reporting compliance program. It would ultimately replace:

Tip Rate Determination Agreement (TRDA)
Tip Reporting Alternative Commitment (TRAC)
Employer-Designed TRAC (EmTRAC)

At this time, the IRS is continuing to explore updates for the gaming industry, so the potential enactment of SITCA would not impact the current Gaming Industry Tip Compliance Agreement (GITCA) program.

How Would Employers Join SITCA?

The current proposal holds that employers who participate in other tip reporting compliance programs would maintain their agreement until any of the following situations occurs:

The employer is accepted into the SITCA program,
The IRS determines that an employer is no longer compliant with the term of their agreement with TRDA, TRAC or EmTRAC agreement, or
At the end of the first full calendar year after the full procedure is published in the Internal Revenue Bulletin.

Any individual who wishes to provide feedback on the proposed SITCA program can follow the instructions in the Internal Revenue Service notice about SITCA and reply by May 7, 2023.

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