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Presidential Budget Proposes Repeal of Tip Credit


2/10/15
 
Synopsis
 
President Obama effectively started budget negotiations with the release of his budget last week.  Several proposed cuts and tax increases have received a significant amount of attention; however, the proposed budget also includes cuts to items impacting the hospitality industry that have received very little attention to date.  
 
Issue
 
Of particular concern to the hospitality industry is the repeal of the Federal Insurance Contributions Act (FICA) tip credit. Although the repeal is buried within the pages of the budget, the budget projects government savings of $12 billion over 10 years by repealing the FICA tip credit.
 
As CohnReznick discussed in prior communications dating back to 2013, Revenue Ruling 2012-18 issued in June 2012 by the IRS provided clarification regarding the difference between services charges and tips and the impact on the FICA tip credit.  
 
What Does CohnReznick Think?
 
It is clear based on the budget and the recent Revenue Ruling that the administration is focused on limiting the FICA tip credit in the future. While removing the tip credit is only a budget item under consideration, and it is a long road to becoming enacted, it does provide insight into the priorities and thoughts of the administration.  
 
Contact
 
For more information, please contact Michael Harlow, a CohnReznick partner, at michael.harlow@cohnreznick.com or 301-907-2330, or Gary Levy, a CohnReznick partner and the Firm’s Hospitality Industry Practice Leader, at gary.levy@cohnreznick.com or 646-254-7403.
 
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
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