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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention. The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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Will the minimum wage for tipped employees change?

Representative Donna Edwards introduced a bill [H.R. 631] titled “Working for Adequate Gains for Employment in Services Act” (WAGES Act), that would increase the minimum federal cash wage rate for tipped employees from $2.13 per hour to $3.75 per hour.  Since 1966, the Fair Labor Standards Act (FLSA) has allowed employers to use a combination of a cash wage and tips to meet their minimum wage obligations under federal law for “tipped employees.”  Employers may currently pay tipped employees as little as $2.13 per hour and still be in compliance with the FLSA if they credit tips of $5.12 per hour against the minimum wage.

The introduction of this legislation comes shortly after the IRS' response to several restaurant owners that received letters from IRS reducing the allowance of the Form 8846 tip credit that flows through page 3 of Form 3800 due to Alternative Minimum Tax limitations. Prior to 2007, the tip credit was subject to AMT, but subsequent tip credits are not subject to AMT.

There was an error in the process for computing the total amount of credit allowed when 45B FICA Tip credit was claimed on Form 3800, General Business Credit.  The IRS added new instructions for computing the 45B FICA Tip credit claimed on Form 3800.  For tax year 2010, the IRS has made a programming change to correct its error.