Kitin: Is the service charge given to restaurant employees subject to withholding tax on compensation?
Most of the restaurants include service charge in the bill of its customers. This service charge is distributed to the restaurant employees as part of their payroll. Will the service charge also be subject to tax? Should the company withhold tax for this?
Answers and Views:
Answer by John H
It sounds like you are talking about the gratuity. My wife’s restaurant charges a gratuity of 15% if the party is over 6 people. The company withholds payroll taxes for these transactions because it is basically treated as a reportable tip.
Yes. Per BIR Regulation, anything that an employee receives as compensation for their service rendered should be taxed.
I used to have a hotel and restaurant business and they distribute 85% of the service charge to their employees, which they subject to withholding tax on compensation and report it in their monthly 1601-C.