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IRS Gets Rid Of Automatic Gratuities At Restaurants

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MIAMI (CBSMiami) – The Internal Revenue Service has managed to do what years of customer complaints could not.

It got rid of gratuities being automatically being added to your bill.

On January 1st, a new IRS rule defines mandatory tips as a “service charge” and required that they be put on the waiter’s paycheck as taxable income.

Some in South Florida’s service industry don’t welcome the change.

“I would rather have a 15% guaranteed and pay taxes on it than to be receiving sometimes even 5%,” said waitress Paola Reategui.

Reategui is a waitress on Ocean Drive where almost all the restaurants have dropped the mandatory 17 or 18% gratuity, even for large parties.

“It’s very volatile. We don’t really know how much we’re going to make, it depends,” said Reategui. “You can have a $500 check and get $5.00 or you can have a $500 check and get 20 percent.”

The same was true up and down Lincoln Road on Miami Beach and along Las Olas Boulevard in Ft. Lauderdale. All are areas that cater to South Florida’s life blood, the tourism industry.

“Well the thing is, the people who come here from out of town and international people, they really don’t understand about tipping,” said bartender Dawn Evelyn.

That’s largely because, unlike in other countries where servers are paid a living wage, U.S. restaurants are allowed to pay waiters below minimum wage.

“How do you expect them to voluntarily pay a tip where they’re not accustomed to do so,” said Reategui.

Many servers in high volume tourist areas often complained that international customers don’t understand that they live off of tips.

“But it’s really not fair when the check is like $50-60 and they leave $1.50 tip,” said Evelyn.

At Cafe Europa on Las Olas, where tips are pooled and distributed among the bus staff, runners and waiters, putting the tips on those people’s paycheck would have been an accounting nightmare.

“You can’t really discern who earned what in tips. You can’t separate it out. And it’s virtually impossible for us to do it in an establishment that pools tips,” said Cafe Europa’s Jimmy Facciolo.

We did find one restaurant that has kept the automatic gratuity. Per IRS rules, Mangoes on Ocean Drive now calls the 18 percent fee a service charge.

“I normally tip 20 percent so they’re kind of screwing themselves,” said one customer.

The added gratuity was something that tourists from Virginia were completely unaware of and a bit indignant about when brought to their attention.

“That’s something that, had we not looked, we would never have known,” said the tourist. “They probably would have gotten a 40 percent tip, 18 percent they had already charged plus what we would have added to it.”

The double tip has long angered those who didn’t read the small print on the menu that informed a customer of the automatic tip.

“I often just forgot that it was included and added more for a tip so I was paying a lot more than really I should have paid,” said customer John Webb.

There are those who believe the change will be an incentive for waiters to provide better service or for management to begin paying servers minimum wage in order to keep good staff.

Regardless, for the IRS, it’s about a new rule that they’ve said they will aggressively enforce.

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