Synopsis: The tip that used to be automatically added to large parties (6+) will no longer be added in automatically, and will be termed a 'Service Charge' from now on.
This is a big change being generated by the IRS, and affects many people down the line. Beyond the big message (PLEASE DO NOT STIFF YOUR SERVERS), there are tax ramifications to keep in mind.
How it affects the servers:
* This 'service charge' will be added into their paychecks, so they may have to wait 2 weeks to get it. (A cash gratuity in this case may be above & beyond the set 'service charge' amount -- we recommend verifying this before giving a cash tip of any amount to make sure.) [But remember, the cash you give cannot usually be expensed, and will still have to be claimed by the server at some point.]
* It will be taxed just like their regular wages, so there will be less guessing/estimating how much they made on their tax returns. (They must still continue to report daily tips, though.)
* Servers are generally responsible for all payroll taxes on their gratuities when filing their taxes (hence the usual fudging). However, in this case, the payroll taxes on the 'service charges' will be covered, and it should all be reported on the 2014 Form W-2. This may actually help the individual at the end of the year; by not having to pay the additional taxes, they may receive a larger refund.
* These gratuities/service charges are now eligible for deduction if the employee has any garnishments or preexisting deductions in effect.
How it affects the restaurants:
* More time spent on back-office accounting; these 'service charges' must be added directly into payroll, which means a lot of double-checking daily POS reports.
* The employer must pay payroll taxes on these amounts. While it is a deductible expense on their part, it is still more expensive in the long run.