(USNewsMag.com) – A recent proposal issued by the Internal Revenue Service, dubbed the Service Industry Tip Compliance Agreement (SITCA) program, is facing widespread backlash and ridicule.
The program proposed aims to increase reporting compliance for workers who receive tips such as waiters and bartenders. The program would use point-of-sale (POS) and attendance system data to determine if the workers are paying taxes on their tips. Employers would be required to report the data annually, essentially handing over all digital sales, payments, tips, and shift data for the government to analyze.
It is an open secret that tipped workers are able to underreport their total earnings because they often receive cash tips that are untraceable. The SITCA program would analyze the electronic tips and compare that to cash payments in order to calculate an estimation of all tips collected. The bulletin posted on the government website indicates that the estimation would be adjusted to reflect checks that received no tip, or the stiff rate, and the differences between charged tips and cash tips. According to the IRS, cash tipping is generally a lower percentage of the total bill. These factors would be incredibly difficult to estimate as the stiff rate and cash tip percentage vary greatly between establishments and even within them.
The IRS claims that this program would “improve tip reporting compliance and to decrease taxpayer and IRS administrative burden.”
Many of those ridiculing this new proposal have pointed to a recent statement made by President Joe Biden in which he promised that the IRS would not use the funding provided to it through the Inflation Reduction Act to target Americans making under $400,000 a year. According to a 2022 report, however, the IRS was five times more likely to target low-income families than those in the highest income bracket.
Rand Paul tweeted a question addressed to the president asking if servers in restaurants make over $400,000 a year, followed by a link to an article written by Thomas Massie on the subject.
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