Guiding You Through The Legal Process
View Our Practice Areas

IRS publishes tax guidance on tips for volunteers

Employers in Georgia have a responsibility to pay payroll taxes for their employees. Tip boxes set up for volunteers, however, have created confusion about employee classification and employer tax obligations. The Internal Revenue Service has addressed this issue in an IRS Chief Counsel Memorandum.

The memorandum presented a scenario where an employer classified individuals performing services as volunteers. Tip boxes were placed in the service area, and customers had the option of donating cash to workers at their discretion. The volunteers divvied the tips at the end of the shift without disclosing to the employer the amounts received. Upon performing an audit, the IRS determined that the employer should classify the volunteers as employees for payroll tax purposes. The audit resulted in the agency sending the employer Letter 3523.

The IRS determined that the money received by the workers qualified as tips that an employer had a responsibility to pay taxes upon. The timing of the tax obligation arose once the IRS sent a demand letter to the employer instead of immediately upon the workers receipt of the tips because the employer had not been informed of the amounts.

A business or individual confronted by tax demands from the IRS might gain clarification about how to respond by consulting an attorney. An attorney may interpret notices from the tax agency and review the person's financial records and tax filings. These services may help prepare someone for a tax audit. The attorney may be able to attend the audit and offer advice to the person as auditors ask questions. An attorney may also show evidence of tax compliance or broker a settlement to resolve unpaid taxes. With legal representation, a person might avoid excessive penalties and consequences like a wage levy or tax lien.

No Comments

Leave a comment
Comment Information
EMAIL US FOR A RESPONSE

Contact Us Today

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Office

100 Galleria Parkway SE
Suite #480
Atlanta, Georgia 30339

Toll Free: 800-765-2779
Phone: 404-841-6561
Map & Directions

600 University Park Place
Suite 100
Birmingham, AL 35209

Phone: 205-401-1229
Map & Directions