Announcement 2012-50 - Application of guidance on tip income, distributed service charges not until 2014 

December 13:  In June 2012, the IRS issued two releases—Rev. Rul. 2012-18 and Announcement 2012-25—concerning taxes imposed with respect to tip income and service changes under the Federal Insurance Contribution Act (FICA).

The June 2012 releases included information for employers and employees, and specifically addressed distributed service charges that are characterized as wages—not tips. See TaxNewsFlash-United States: IRS guidance to employers concerning applying FICA to tip income, distributed services charges


Rev. Rul. 2012-18 included, in question-and-answer (Q&A) format, guidance as to how an employer is to report tip income for FICA purposes and after an IRS notice and demand is made, and on collection procedures. Specifically, Q&A1 stated that:


  • An employer’s characterization of a payment as a “tip” was not determinative for FICA purposes.
  • Absent certain factors, a payment may be a “service charge.”
  • To the extent that any portion of a service charge paid by a customer is distributed to an employee, that amount is wages for FICA purposes.

Announcement 2012-25 provided, as interim guidance, that IRS examiners are to apply Q&A1 from the revenue ruling to amounts paid on or after January 1, 2013. The June 2012 announcement also requested comments concerning this interim guidance.

One-year extension

The IRS today released an advance copy of Announcement 2012-50 [PDF 7 KB], which extends for one year—to January 1, 2014—the time for examiners to apply Q&A1 in the limited circumstances provided.


Today’s announcement states that this extension of time is being provided at the request of businesses, which sought additional time to make changes to their systems in order to comply with the rules regarding the proper treatment of service charges specified in Q&A1.




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