LABOR:

IRS’ tip deal riles Culinary

Union says many workers likely to exit withholding program

Sunday, Nov. 30, 2008 | 2 a.m.

Slipping Tips

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Service industry workers in Las Vegas are losing money - at least some of them. For example, a limo driver and a bellman say people are continuing to tip as well as they had in the past, but because Las Vegas is getting fewer visitors, their overall tip income is down. However, some dog groomers say neither their tips, nor their business has declined. (Length: 2:36)

20 percent: Reduction in amount the IRS has agreed to withhold from paychecks of casino workers to account for tips. The Culinary Union says the agreement between the IRS and the industry is not enough with tips down 50 percent.

90 percent: Share of tip-earning Nevada workers in the withholding program, according to the IRS.

Just 20 months ago, Uncle Sam wanted a bigger piece of the action from casino workers in Las Vegas — perhaps the largest concentration of big-tip earners in the country.

Despite labor and management protests, the Internal Revenue Service demanded employers start withholding more from the paychecks of workers who chose to participate in the program rather than face possible audit.

Then the economy turned. Tipping fell across the board — and the issue of IRS withholding is flaring up.

The IRS has agreed with the gaming industry to reduce by 20 percent the amount casino workers must declare as tip income.

The Culinary Union, which represents 60,000 service workers, says tips are down by 50 percent.

The disagreement sets up a showdown between the union and the gaming industry, which union officials say acted alone, without rank-and-file input.

A spokesman for MGM Mirage, the largest player on the Strip and the largest private employer in the state, disagreed with that assessment and heralded the agreement. “It’s not often that the letters ‘IRS’ spell relief, but if you’re a tip-earning employee in this economy, that’s what they spell,” company spokesman Gordon Absher said. “It’s our hope that this move will help tip-earning employees to better deal with the adverse economy we’re all suffering through.”

The Culinary and MGM Mirage requested meetings with the IRS, independent of each other.

Absher noted that the new agreement postpones the second of a three-tier increase and immediately reduces by 20 percent the amount of tip income employees have to declare.

Labor leaders say many members intend to drop out of the IRS’ voluntary program to withhold taxes from tip earners, risking the possibility of an audit each year.

“What the IRS has not done is fully understand the economy that’s going on here,” Culinary Secretary-Treasurer D. Taylor said. “The volume is not the same, the spending level is not the same, and how people are spending their money is different too. Our tip earners are getting whacked in a number of ways, and we don’t feel the tax rates reflect that.”

He added: “There’s a correlation between the number of coolers going to hotel rooms and gratuities on the floor.”

According to the Las Vegas Convention and Visitors Authority, visitor volume was down 10 percent in September, the most recent month of available data, and the average daily room rate was down 21 percent from the same month last year.

Taylor said tip earners are also being hurt by an influx of European tourists unaccustomed to the country’s tipping culture.

With the threat that large numbers of workers will pull out of the tip-compliance program, IRS representatives are to participate in a seminar at the Culinary’s union hall Tuesday to teach members how to keep their own books.

A mass exodus of casino workers from the program would be a big blow to the IRS, which has always worried about getting shortchanged by tip earners. In fact, it instituted the program to capture more of the billions of dollars in tips it says go unreported each year nationwide.

Under the program, the paperwork burden is eased for workers and the IRS. Employers withhold taxes on the estimated tips and the IRS promises not to audit those who participate.

On the other hand, the IRS requires those who don’t participate in the program to track daily tips and report the aggregate on their tax returns. The agency offers a worksheet with spaces for tips earned each day, a separate column for tips shared with others and spaces for co-workers’ names.

According to the IRS, nearly 90 percent of Nevada’s tip-earning workers participate in the program. Taylor said he expects that number to drop significantly under the new agreement. That, in turn, could affect casinos because participation in the program reduces the likelihood that a company — and its employees — will be audited.

The current dispute is playing out against a backdrop of hard feelings between the Culinary and the IRS in recent years.

Thousands of the union’s members who participated in the tip compliance program were audited in 2006 despite assurances from the IRS. The Culinary protested the most recent round of rate increases last year when the casino companies negotiated a new three-year tip agreement with the IRS. The union signaled its unhappiness with the program in its contract talks by asking for — and winning — employer contributions to an IRS “defense fund” to assist employees who choose not to participate in the program and therefore might be audited.

“I don’t think it’s going to get better before it gets worse,” Taylor said. “It is complicated to keep your own books, but we want to give all the tools to our members so they can make their own decisions.”

Discussion: 14 comments so far…

By anthemccresident

11/30/08 at 10:27 a.m.

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Even though the tips may be "down 50%" as claimed by the union, the amount of tips actually earned is still way more than what is required to be reported. For example, a cocktail waitress is only required to report around $80-90/shift in tips when in reality most of them earn upwards of $200 in a good night! That means they don't have to pay taxes on half of their tips!! It's the American taxpayer that is getting shortchanged!
By halfacre

11/30/08 at 11:20 a.m.

Comment removed by staff.
By johnevegas

11/30/08 at 12:06 p.m.

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"It's the American taxpayer that is getting shortchanged!"

Right... Say that the next time you see a cocktail waitress driving her Ferrari.
By NevadaFive

11/30/08 at 3 p.m.

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Off subject but still related. Many years ago (1989, I think) I was lucky one night and won $9K in a progressive slot machine. To my surprise - since I'd never won that type of change previously - I had to declare it on my income. Consequently, I ended up paying the IRS instead of getting a refund. I found this very unfair considering that I was only a casual gambler - maybe once or twice a month with a $40 bankroll - and almost always lost every penny. I learned later that you (with proof) can offset taxes by your loss in that year. I rarely gamble but estimate that I must have lost $50 a month for the ten years previous to my win. Therefore, at least $6K of my money helped build more casinos. No problem - that's gambling. THE problem is the IRS taking their cut.

Tips should remain tax-free, period. Gaming wins should be in the same category! A better formula needs to be implemented. I wish I knew the solution. Perhaps these "overpaid" cocktail waitresses, waiters, maids, etc., can pay a daily $5 fee to an IRS fund. Should the casino's have an admission fee ($5 daily) like they do in some european countries? I think the IRS would make more money off an admission fee. I also imagine it might reduce attendance. However, there has to a better way then what exists at present.
By jfnance32

11/30/08 at 3:42 p.m.

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"Tips should remain tax-free, period."

Can my income be tax-free, too?
By SScubelek

11/30/08 at 7:48 p.m.

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It's not the taxpayer that looses? If you don't provide good service you don't get paid the tips.The employee's still get paid somewhat of an hourly wage and that should get taxed. There is no way you can estimate what a person gets tipped in a single shift.Greed on the American Government is what set this standard on these hard working people.Just another way to over tax the hardworking middle class! Been there and done that from 85 till 89 and the people that don't provide a good service and pool tips is a farce also. You provide the service well, you should be able to keep your own tips and not pick up for the slackers. Scooter from Indy.
By Cannon_Asesrb

11/30/08 at 11 p.m.

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"Right... Say that the next time you see a cocktail waitress driving her Ferrari."

Hey John, look at it this way, it is patriotic to pay taxes as VP Elect Biden once said. How dare the cocktail waitress and servers of the state not be patriotic? It's all about them also sharing the wealth they earn like Pres Elect Obama wants us all to do. Heck many of them probably voted for Hope and Change so they should be PROUD to do their duty to make sure the government has enough money so that all can have their needs taken care of. *sniff* From each according to ability to each according to need... Hopechage has finally infected me too.

Yes, I was a tipped employee back in the 90s and yes I did report every last dollar to the bloodsuckers in Washington. I wrote the amounts on the time card every day and every year I had to include a letter with my tax return stating that the IRS calculated tip amount was off by X amount; yes I had to calculate it. (The tip allocation requirement does go back quite a few years.) It must have worked since I was never audited.
By johnevegas

12/1/08 at 6:55 a.m.

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"How dare the cocktail waitress and servers of the state not be patriotic?"

That perspective overlooks that these people already pay taxes on their contracted wages. But since they do pay them, using your theory about patriotism, they are probably about 90% patriotic. Me too!

This is an interesting balance to the righty push for tax breaks for the rich. Tax the unrich and untax the rich. I get it, and completely understand who you're rooting for.
By Cannon_Asesrb

12/1/08 at 7:33 a.m.

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"This is an interesting balance to the righty push for tax breaks for the rich. Tax the unrich and untax the rich. I get it, and completely understand who you're rooting for."

Nope John, I am for everyone paying their fair share. You are interested in anyone earning more than you paying more in taxes. "Soak the rich those evil bastards!" Heck John, let's just solve the problem right here. 100% tax rate. Surely that will solve all our problems.

"That perspective overlooks that these people already pay taxes on their contracted wages."

Hmmm so I guess tips aren't earned income, eh? I guess servers and bartenders don't actually work in order to receive tips. They just happen to drive to a specific place 3, 4, 5 times a week and magically they receive money after 4 - 10 hours. Kinda like manna from heaven I guess. BTW John, it's not my prospective, it is Biden's.
By johnevegas

12/1/08 at 10:53 a.m.

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"Hmmm so I guess tips aren't earned income, eh?"

Hey, you and nance have a lot in common. I never said the things you said. I said contracted wages. Tips are not contracted.

But since you mentioned it, tips not always earned. And sometimes they are earned but unpaid. Tips are at the discretion of the customer. For me, that's a massive difference.

By the way, I'm one of those rich evil bastards you imply we should tax 100%. I don't mind paying what I have to in taxes. But not a penny more. So I think your idea is stupid.
By goingbust

12/1/08 at 10:55 a.m.

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It would be better to fund the government with a consumption tax. Then all these problems go away and people pay when they purchase. They guy who won the $9K progressive would pay when he spent his money. The cocktail waitresses would pay when they spent their money. I would pay when I spent my salaried earnings. It is fair all around, except to the accountants and many IRS workers, who would be looking for new work.
By BigStack

12/1/08 at 11:53 a.m.

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I'm surprised that the president of HERE or at least the Vegas local doesn't call Harry Reid, remind him that he's up for reelection in a two years, and teil him to call the IRS commissioner and order him back off, under threat of his budget being severly cut.
By BeaTravis

12/1/08 at 1:56 p.m.

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To the poster that stated most cocktail waitresses make 200+ a night- that couldn't be more incorrect. Less than 10% of them make more than 200.00 on average. I would say the vast majority make between 50-100 a night and there are many many girls who work in lounges that are lucky to get 20 in an 8 hr shift. There are more people out there who stiff than the average person would beileve
By Cannon_Asesrb

12/1/08 at 6:54 p.m.

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"Hey, you and nance have a lot in common. I never said the things you said. I said contracted wages. Tips are not contracted."

Hmmm so the only income that is taxable is due to a contract? Ok done. The verbal contract is that you get wages plus tips (back in Illinois in the mid 90s it was $3.13 an hour plus tips) by working here in the position as a server. If you take the job, that is what you accept. Sounds like a verbal contract to me.

"But since you mentioned it, tips not always earned. And sometimes they are earned but unpaid. Tips are at the discretion of the customer. For me, that's a massive difference."

Your right, and what exactly is your point? That well, because some might not tip you don't have to pay tax on all your tips? Or you saying that the server didn't make money from those who did tip them?