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New IRS rule could affect automatic gratuities

WASHINGTON, D.C. (NEWSCHANNEL 3) - A new IRS rule could make restaurants reconsider adding automatic tips to large parties.

According to the Wall Street Journal, starting in January the IRS will begin classifying those auto-tips as service charges.

That means they would be treated like regular wages, subject to payroll tax, instead of tips, which workers report as income.

The change could mean additional costs and more paperwork for employers.

The IRS ruling was issued in 2012 to clarify tax guidance on tips after they noticed a rise in auto gratuities.