LAS VEGAS TIP AGREEMENTS AND THE RISK OF OPTING OUT

Many Las Vegas residents are nightclub, casino, or restaurant employees, and earn tip income in addition to their regular wages. Tips are considered wages and are subject to employment taxes, including Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and Federal income tax withholding.

The IRS created the National Tip Reporting Compliance Program (NTRCP) to “help” employees accurately report their tip income. The IRS NTRCP enters into tip agreements with employers: in Las Vegas, these agreements go by the acronyms of GITCA (Gaming Industry Tip Compliance Agreement) and TRDA (Tip Rate Determination Agreement). If an employee opts in to a tip agreement, the employee is considered “tip compliant,” and should not be audited by the IRS related to tip income.

Here’s the catch. Every year, employers must provide the IRS with an annual report itemizing all employees who did not participate in the tip agreement. In addition, the IRS has the authority to audit these employees’ tip incomes, no matter how long the employee opted in to the agreement. If the employee opted out for one day during the year, the IRS can initiate an audit. Typically, the examination is an IRS correspondence audit requesting that the employee provide a tip log or daily record of his or her tips. If an employee fails to respond or the IRS rejects the employee’s response, the IRS will automatically calculate the individual’s yearly tip income by multiplying a nonparticipant tip rate (much higher than the participant rate) by the number of hours the employee worked during the year.

The IRS recently completed a round of audits of employees for the 2016 tax year. The IRS is now starting to audit “tipped” employees for the 2017 tax year, and is adding additional casinos and venues to its targeted employees. Many Las Vegas residents rely on tip income to supplement their wages. It is important for these employees to understand tip participation agreements and the risk of opting out. The IRS actively pursues audits of employees who do not participate in their employers’ tip rate agreements.

Silver Law PLC operates in Arizona and Nevada and all of its lawyers are former lawyers for the IRS. A tax lawyer from our team can help you understand how the complex tax code applies when you are an employee earning tips. We’ll help you ensure that you are meeting your obligations. If you have been audited or are facing collections, we can also help you navigate that process. We can either find ways to bring down your tax debt or can negotiate a settlement for you. Call us today to talk with a tax lawyer and learn more.

Silver Law PLC

410 South Rampart Blvd, Suite 390
Las Vegas, Nevada 89145
Office: 702-318-7130
Website: taxcontroversy.com

Silver Law PLC

7033 E. Greenway Pkwy, Ste 200
Scottsdale, AZ 85254
Office:(480) 429-3360
Website: taxcontroversy.com