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Special Enrollment Examination

Part 1SEE Part 1: Individuals✓Part 2SEE Part 2: Businesses Part 3SEE Part 3: Representation, Practices and Procedures

Part 1 Adjustments to Income question: charge added to bills for large parties

Part 1Adjustments to Income

Rita, a restaurant server, received $1,800 in 2025 from an automatic 18% charge added to bills for large parties, which customers could not change. Can this amount be a qualified tip?

A No; a mandatory charge is not determined by the customer
B Yes, but only if it was paid in cash
C No; servers do not have a tipped occupation
D Yes; it was paid to her as part of her pay

Show the answer and explanation

Answer: A. No; a mandatory charge is not determined by the customer

Qualified tips must be paid voluntarily, not subject to negotiation and determined by the customer. Service charges and automatic gratuities added to the bill are not qualified tips unless the customer is expressly allowed to remove or change them. The amount is still wages; it just cannot be deducted on Schedule 1-A. Wait staff is a listed tipped occupation. Source: IRC 224(d); 2025 Form 1040 instructions, Instructions for Schedule 1-A, Qualified Tips, Example 1. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Treating every gratuity a server receives as a qualified tip.

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Study note: Adjustments to Income and the Schedule 1-A Deductions Part 1practice questions & mock exams

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.