A coming crackdown on $1.6 billion in unreported tips will continue the IRS' long and ugly history of targeting low-income Americans

IRS Plans To Raid Workers’ Tip Jars

A coming crackdown on $1.6 billion in unreported tips will continue the IRS’ long and ugly history of targeting low-income Americans.

ERIC BOEHM | 2.10.2023 11:30 AM

When President Joe Biden signed the Inflation Reduction Act last year, the White House touted how the bill’s $80 billion in new funding for the IRS would “make our tax code fairer by cracking down on millionaires, billionaires, and corporations that evade their obligations.”

It now appears that some of those resources—and some of the coming crackdown on tax evasion—will, quite predictably, be aimed at individuals earning considerably less.

This week, the Treasury Department and IRS announced plans to overhaul existing programs that track tips earned by service sector workers. The new Service Industry Tip Compliance Agreement (SITCA) program will “take advantage of advancements in point-of-sale, time and attendance systems, and electronic payment settlement methods to improve tip reporting compliance,” according to the IRS.

Of course, workers who earn more than $20 in monthly tips are already required to report their tips to their employers, and those tips are supposed to be included in tax data sent to the IRS.

But a lot of that money never finds its way into the government’s hands. As part of the announcement on Monday, the IRS highlighted a 2018 Treasury Inspector General report that estimated $1.66 billion in tips went unreported during the 2016 tax year.

The IRS’ proposal “streamlines both compliance with and enforcement of tip reporting requirements by eliminating employee participation,” according to the notice published this week. Translation: We’ll make sure the government gets its cut of those tips by simply removing workers from the transaction whenever possible.

That’s something that the IRS can do now that so many tips are handled electronically, as secondary transactions after you buy a cup of coffee or pay your bar tab with a credit card. (So here’s a tip: Use cash to thank a service worker whenever possible.)

The new SITCA program is not yet in place, and still has to work its way through the complicated federal approval process. The IRS will be collecting comments on the proposal until May 7. It could also be affected by a House-passed bill to rescind the new IRS funding included in last year’s Inflation Reduction Act, though that proposal seems unlikely to pass the Democratic-controlled Senate or get Biden’s signature.

That the IRS is going to use at least some of its new resources to go after workers’ tips shouldn’t come as too much of a surprise—despite all of the promises from Biden and top IRS officials about how no one earning less than $400,000 would be targeted. As Reason’s Liz Wolfe reported in January, low-income taxpayers have always been the ones most likely to get hassled by IRS audits. In fact, during 2022, low-income wage-earners who qualified for the earned income tax credit were five times more likely to be audited than any other taxpayers, according to a report by Syracuse University’s Transactional Records Access Clearinghouse.

It also fits snugly within the Biden administration’s plans for a “comprehensive financial account reporting regime” that the Treasury Department outlined in 2021 with a promise to significantly increase the cost of tax evasion.

As far as the IRS’ incentives go, targeting the working poor makes perfect sense. Wealthier Americans have the resources to fight back against an audit—but there might be $1.6 billion in unreported tips out there, and most of that was probably collected by people who don’t have an accountant on retainer.

It seems absurd that the IRS would consider targeting low income Americans for additional taxation. After all, these are individuals and families who are struggling to make ends meet in an uncertain economy. It’s like shooting fish in a barrel - pointless and insensitive. It’s also completely misguided from an economic standpoint; low-income taxpayers have very little money to spend, so it doesn’t make sense to squeeze their wallets any further. If the goal is to raise revenue, then policymakers should focus on those who have ample assets and can afford to contribute more generously - not those least able to pay.

It is absurd, but that’s what the IRS does.

So targeting their job providers isn’t attacking the poor? Have you thought about economics?

The “job providers” can itemize and deduct business expenses and depreciated assets. The workers get stuck paying full boat.

Workers didn’t agree to a wage? Freely?

Or better yet, cut spending.

Taxing more isn’t the answer

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I didn’t say it was. I may be socially liberal, but I have been fiscally conservative my whole life. Anyone firmly planted on one side all of the time is nothing more than a sycophant in my view.

Do you condone child slave labor to help America become more green?

Do you support eliminating the middle class entirely in favor of giving billionaires more tax breaks?

The only way you have a middle class if you have an educated working class. Who votes for their best interests.

Right now we don’t. Democrats have destroyed education

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I will agree with you on this. 95% of my political ideaolgy falls Conservative, but I do have some social Liberal leanings… as I think most Conservatives do. What I don’t agree with is what the Left does to minorities (especially blacks) by promising them free stuff, baiting them with never ending programs for a free ride through life, that keeps them from getting jobs, getting an education, rising up from poverty… picking themselves up by the boot straps, so to speak, and making an effort to do better… just like many white people have had to do.

All you have to do is look at virtually every Democrat run city to see this is true. Any Left leaning person that says it isn’t the truth is either blind or totally disingenuous.

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Earn more than $20 in tips? Joe Biden’s economy says you need to pay your fair share.

Sadly, we Americans are pussies and we deserve everything we put up with.

The IRS requires employees who earn at least $20 a month in tips to keep a daily record of their tips to give to their employer. All of those tips are then required to be included on tax returns. Employers are then required to withhold taxes on income earned from tips.

Problem is they can’t prove cash tips, they assume 20% but they would have to request the payee to write down how much cash they left. They won’t.

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I’m much the same however both parties are out of control when it comes to spending.

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:rofl: :rofl: :rofl:

It’s what F-ing scumbag demoRATS do best - SCREW THE WORKING TAXPAYER . WHY THE F DO YOU THINK THEY HAVE SO MANY LOBBIST ?

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Tax breaks are given to those that pay taxes. The top 10% pay 70% of Federal Income taxes.

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I believe 37% is the highest tax bracket to date .

You are correct.

I stand corrected. 73%.

Sorry i miss understood , i would imagine the top 10% pay over 73 % and we have 54% who do NOTHING but collect from taxpayer funds via the demoRATS .

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