IRS Cracking Down on Tipped Workers and Maine’s Stimulus Checks


UPDATE: The IRS now claims it will not be taxing the $450 checks.

The Internal Revenue Service, recently invigorated with 87,000 new employees, has announced a new program that will help employers monitor whether restaurant workers are paying taxes on tips.

The IRS also announced, in a separate release last week, that it was undecided on whether Gov. Janet Mills’ latest round of stimulus checks created a federal tax obligation for Mainers.

In guidance posted by the IRS, the agency is advertising a new system whereby restaurant owners and workers can facilitate more effective compliance with tax laws.

Many restaurant workers make the bulk of their income in tips, and even when those tips are left by patrons in cash, waiters and waitresses are still supposed to report the income and pay taxes on it to both the state and federal government.

Most restaurant workers are law-abiding citizens who dutifully report all of that tipped income.

But anyone who has worked in the industry can tell you that sometimes a few dollars here or there might end up missing from TurboTax.

The Service Industry Tip Compliance Agreement (SITCA) program will turn restaurant owners into the IRS’ enforcement arm, equipping them with tools to monitor employee compliance.

In return, the IRS is offering the employers protection from liability related to the underpayment of taxes owed on tips.

“Participating employers receive protection from liability under the rules that define tips as part of an employee’s pay for calendar years in which they remain compliant with program requirements,” the IRS said.

The new program from the IRS suggests the tax-collector is looking to crackdown on service workers, and the protections of the SITCA program may prove attractive to restaurant owners eager to avoid getting jammed up with the tax collectors.

The rollout of the program was described merely as a voluntary effort to help the workers and restaurant owners comply with federal law.

But the effort suggests the 87,000 new IRS agents hired under the Inflation Reduction Act (IRA) aren’t just going after millionaires and billionaires, as many liberal supporters of the law claimed.

Also in the IRS’ sights: The $450 checks the Mills administration distributed to more than 800,000 Maine residents.

In a random act of journalism, the Press Herald reported Thursday that the IRS gave notice on Feb. 3 it was considering how to handle the latest round of state payments to residents.

“The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers,” the IRS said.

“There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex,” it said. “We expect to provide additional clarity for as many states and taxpayers as possible next week.”

“For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional,” it said. “For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.”

Although the IRS news release said it would provide clarity this week, there has been no update on the IRS website, meaning Mainers have no indication whether the tax filings they may have already submitted will be compliant.

The Mills administration is so far expressing confidence that the payments will not create an added tax burden or paperwork burden for Mainers, but experts interviewed by the Herald were a little less cocksure.

Although Mills had distributed previous stimulus-type payments during the pandemic as electronic transfers, she decided to send out the $850 payments last year as paper checks along with a letter from her — a move almost certainly calculated to influence voters just prior to the election.

Like those vote-buying checks last year, the $450 checks Mills signed into law at the beginning of the year under the pretense of providing relief from high heating costs will also be physical checks.

In related news, the IRS announced Wednesday that it has multiple job openings and is hiring “motivated attorneys.”


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