Tip Compliance

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Can an operator save money while participating in an IRS Tip program?

By GrataMan

All operators can benefit from ATIP, but there are likely a good number who can benefit financially by participating. The pivotal criteria for saving money are a high percentage of charged sales and requisite tip declarations. ATIP requires that tip declarations equal to two percent less than house charge tip rate of the previous year. At one extreme, an operator that has 100% charged receipts could immediately reduce total tip declarations by 2%. Assuming an 18% charged tip rate, that's an 11% reduction, and savings for both employer and staff. Savings begin around the 70% charge rate (see tip calculator in tools section, and "ATIP: How IRS immunity can save you money" in Learning Center ).

Could your restaurant be tip compliant if your staff declares only 10% tips on cash sales? It can if it averages 20% charged tip rate, declares all charged tips, and cash sales make up 20 percent of total sales. In this scenario, the 2% savings on charged tips allowed under ATIP can offset an 8% shortfall in cash tips declared. You may be closer to tip compliance than you think.

Finally, if your staff's wages plus tips exceed the Federal minimum wage, it is likely that ATIP will cost virtually nothing, even if declarations go up! This is because the Tip Credit essentially refunds this additinal amount paid. Please see "Rebirth of the Tip Credit in Learning Center.