Final Rules for Reporting Tips Electronically

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The following article is provided courtesy of CCH, Inc.

The IRS has adopted final regulations that allow employers to establish electronic systems for use by their tipped employees in reporting their tips to the employers. The new rules also address substantiation requirements for employees using electronic systems. The final rules are effective as of Dec. 13, 2000; however, employers may apply the provisions to earlier periods.

The final regulations, which apply only to tip statements required by Code Sec. 6053(a), set forth requirements for the establishment of an electronic system. The system must ensure that the information received is the information transmitted by the employee. All occasions of access that result in the transmission of a tip statement must be documented, and access procedures must make it reasonably certain that the party accessing the system and transmitting the tip statement is the employee identified in the transmission. An employer who becomes the subject of an investigation must supply a hard copy of the electronic statement to the IRS upon request.

The electronic tip statement must contain the same information as that reported on a paper tip statement and must bear the employee's electronic signature. Employees are deemed to maintain sufficient evidence to establish the amount of tip income received during a calendar month through a daily record if they report tips on a daily basis through an electronic system that meets the substantiation requirements of the regulations and receive a hard copy of a daily record based on those entries from the employer.

The final rules are set forth in TD8910.


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