Some Restaurants Nixing Automatic Tips in 2014 - NBC Right Now/KNDO/KNDU Tri-Cities, Yakima, WA |

Some Restaurants Nixing Automatic Tips in 2014

Posted: Updated: - Some restaurants may start to nix automatic tips in 2014, as an Internal Revenue Service change takes effect Wednesday.

Automatic tips at restaurants are generally 18-percent tips for larger parties, and they are now viewed as a "service charge". That's because customers are required to pay it, and that in turn makes it a taxable wage for servers.

Here's the distinction as far as the IRS is concerned: Tips must be made free from compulsion, giving the customer the unrestricted right to determine the amount. Service charges, on the other hand, are mandatory payments that the customer can not control. The IRS said service charges should be considered part of a server's wages.

The mandatory gratuity policy started as a way to protect servers and make sure they were not under-tipped by patrons.

The IRS actually made the change in 2012, but postponed it until this year to give restaurants time to comply.