[Congressional Record Volume 149, Number 69 (Friday, May 9, 2003)]
[Extensions of Remarks]
[Page E905]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




A BILL TO ENSURE THAT THE IRS ACCURATELY ACCOUNT FOR FICA TAXES PAID BY 
                   EMPLOYERS ON EMPLOYEE'S TIP INCOME

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                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                         Thursday, May 8, 2003

  Mr. HERGER. Mr. Speaker, I rise today with my colleague from 
Tennessee, Mr. Tanner, to introduce the Tip Tax Fairness Act, a bill to 
require the Internal Revenue Service (IRS) to accurately account for 
FICA taxes paid by employers on employee's tip income.
  As we all know, many employees in the service sector of the business 
community earn a substantial portion of their income from tips. 
Recognizing this, Congress passed legislation years ago requiring 
employers and employees to pay FICA payroll taxes on tip income. This 
ensures that an employee's total earnings are reflected in their Social 
Security wage history, which determines the employee's Social Security 
benefits upon retirement.
  In the IRS's effort to collect the FICA taxes they believe is owed on 
unreported tips,. the agency has created an aggregate method for 
assessing employers which is inconsistent with congressional intent. 
Congress did not intend FICA taxes to be paid on an aggregate basis, 
because earnings subject to FICA taxes are intended to be credited to 
an employee's Social Security wage history.
  Under current law, employees are required to report all of their tips 
to their employer. The employer is required to send this information to 
the IRS, along with the employer and employee share of the FICA taxes 
owed. If the IRS believes the amount of tip income reported is not 
accurate the agency will audit the employer, bill the employer using an 
aggregate estimate, and collect the employer's portion of the FICA 
taxes. However, the agency does not credit the employee's Social 
Security wage history. By not doing so, the agency is disregarding one 
of the reasons Congress required employers to pay FICA taxes on tips.
  Furthermore, this lack of accounting on the part of the IRS, and the 
use of aggregate estimates, creates a dramatic shift in the burden of 
tax collection. Under this method, it is the employer who must 
determine if there was underreporting of income, not the IRS, and the 
employer who must disprove an inaccurate assessment. Many service 
providers have expressed concerns that this shift in burden pits the 
employer against their own employees, effectively turning them into 
``tip police.''
  The bill Mr. Tanner and I are introducing today is a solution that we 
believe employees and employers can support. Simply stated, this 
legislation requires the IRS to ensure that assessments paid by 
employers, for FICA taxes owed on unreported tips, are credited to each 
affected employee's Social Security wage history. As such, this measure 
requires the IRS to use FICA taxes as Congress intended.
  Mr. Speaker, I urge my colleagues to support this worthy legislation.

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