Restaurant Service Fees Strike a New Nerve: How They’re Taxed

Dan Jacobs, the chef-owner of two Milwaukee restaurants, started using a service charge model during the pandemic to boost pay for his nearly 60 employees, who were seeing fewer tips.

And then he got a $70,000 tax bill, which he said he wouldn’t have had to pay if he hadn’t moved away from tips.

Jacobs, a contestant in the latest season of Top Chef, is one of many restaurateurs across the country who are adding service charges to customers’ checks since the Covid-19 pandemic slammed the food and hospitality industry. But the US tax code favors traditional tipping systems through ...