What You Need to Know about the IRS's Proposed Tip-Reporting Program

Peacock & French CPAs
Mar 01, 2023

The IRS released a notice early last month that introduced SITCA, a new tip-reporting program for businesses within the service industry. Keep reading to learn more about this proposed change and what it might mean for business owners.

The IRS released a notice early last month that introduced a new tip-reporting program for businesses within the service industry. If you heard about this proposal or read the notice, you likely have some questions about the new tip-reporting program and how it will impact your business. Keep reading to learn more about this change and what it might mean for business owners in the service industry.

What Is the New Program?

The proposed program is known as the Service Industry Tip Compliance Agreement (SITCA) program, and is designed to provide employers with a new method of tip reporting. SITCA is intended to make use of improvements to point-of-sale, time tracking, and attendance reporting systems in recent years; it would also utilize advancements in electronic payment methods. The intent of SITCA is to leverage these advancements to improve tip-reporting compliance for employers while also minimizing administrative burdens on both the IRS and the business owner. Additionally, the SITCA program would improve transparency in tip reporting while also increasing confidence in regards to the accuracy of the tip amount reported.

What Will Happen to Old Tip-Reporting Programs?

Ultimately, the SITCA program is intended to replace all current tip-reporting compliance programs for employers in all areas of the industry. Programs that would be phased out by SITCA include:

  • Tip Rate Determination Agreement (TRDA)
  • Tip Reporting Alternative Commitment (TRAC)
  • Employer TRAC (EmTRAC)

Please note that the SITCA program is not intended to replace the existing Gaming Industry Tip Compliance Agreement (GITCA) program. The GITCA program will remain in place while the IRS continues to explore alternative ways to simplify tip reporting in the gaming industry.

What Are the Main Features of SITCA?

Naturally, we can’t cover every feature of the SITCA program in this blog. However, we’ve highlighted some of the main features of SITCA below to help you gain an idea of what this new program entails and how it may change the way you report tips as an employer. Key features of SITCA include:

  • Compliance monitoring based on actual annual tip revenue and data on charged tips from your point-of-sale system.
  • Allowance for changes to your tipping practices every year.
  • Required submission of annual reports to demonstrate your compliance with the program’s requirements, reducing the need for compliance reviews with the IRS.
  • Liability protection for employers under rules that define tips as part of an employee’s pay for those years in which you remain compliant with SITCA’s requirements.
  • Flexibility to implement tip-reporting policies that work best for your employees and your business model, as long as you remain in accordance with tax laws requiring employees to report their tips to you.

Overall, the mission of SITCA is to simplify tip-reporting compliance for businesses, and the reduction in administrative duties in this regard will likely be appealing to business owners in the service industry. While any change to tax law comes with some growing pains, if SITCA is signed into law, it should make reporting your business’s tips faster and easier in the end. But what if there are aspects of SITCA that you don’t agree with? Here’s what you can do.

What If I Want to Provide Feedback on SITCA?

It’s important to note that SITCA has not been signed into tax law just yet. Notice 2023-13 that was released on February 6, 2023, is merely a proposal from the IRS, allowing time for public feedback on those proposed changes. So, if you want to provide feedback on the proposed SITCA program, follow the instructions provided on the IRS notice released in February. The contents of this notice will also provide you with more in-depth information regarding SITCA and its proposed changes.

Your feedback can be submitted via email or through the Federal eRulemaking Portal if you prefer to submit your feedback electronically. All feedback must be provided by May 7, 2023, so be sure not to miss this deadline.

When Will SITCA Be Put into Effect?

Whether or not the SITCA program will be signed into tax law at all remains to be seen. Currently, it is still only a proposal, and it’s unclear if it will be pushed forward at this time. If SITCA does become law, your current tip-reporting agreements would remain in effect until (1) you choose to accept the SITCA program, (2) the IRS determines you’re not in compliance with your existing tip-reporting agreement, or (3) the end of the first full calendar year after the finalized program is published in the Internal Revenue bulleting—whichever comes first.

If you have questions about any changes to tax law and how they impact your business, contact Peacock & French CPAs today to speak with one of our business tax experts.