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October 05, 2004
IRS Extends Tip Compliance Program

The Internal Revenue Service is indefinitely extending its Tip Rate Determination and Education Program, a voluntary compliance tool that the agency says has helped nearly double the reporting of tip income.

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Originally developed by the IRS in 1993 for the food and beverage industry, the tip program was set to expire in 2005. Now, the program will continue without a sunset date.

"The tip program has proven to be a winner for employers, employees, and the IRS," says Mark W. Everson, IRS Commissioner. "It reduces taxpayer burden and increases compliance. We hope more industries and employees will take advantage of this creative tool."

Since the program was introduced, voluntary compliance has significantly increased, according to the IRS. In 1995, tip wages reported were $9.45 billion. For 2003, the amount exceeded $18 billion. To date over 15,000 employers have entered into tip agreements, representing nearly 47,000 individual establishments.

The tip program offers employers multiple voluntary agreement options designed to provide methods for employers and employees to comply with tip reporting laws. Options include:

  • Tip Rate Determination Agreement (TRDA);
  • Tip Reporting Alternative Commitment (TRAC);
  • EmTRAC - Employer-designed TRAC.

With the indefinite extension of the tip program, the IRS will administer existing tip agreements without the need for employers to re-sign agreements.

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