NCA Backgrounder: No Tax on Tips
NCA issued a backgrounder explaining the U.S. Dept. of Treasury and IRS proposed “No Tax on Tips” rule, introduced last month. The backgrounder is specific to private clubs and explains the proposed rule’s provisions and how they might affect operations at clubs and taxes for club employees, including sample scenarios provided by the IRS. Access it here.
NCA CEO’s Perspective:
As I have spoken with NCA members, I have been asked for my perspective on the government shutdown and its potential impact on the private club community. While the effects of a prolonged shutdown have yet to materialize in this instance, it will begin to sting over the next couple of weeks. The fight between Republicans and Democrats is almost a role reversal of government shutdowns of the past. Typically it’s the Republicans holding out for some concessions from a Democratic President, as was the case in both 1995 and 2013. The longest government shutdown occurred from December 22, 2018 until January 25, 2019 — 35 days. This happened while Republicans controlled the Senate, but the House was in the midst of party control from Republican to Democratic control on January 3, 2019 and there was a fight over funding for border control measures, such as for additional physical barriers or a wall at the Southern border.
Democrats are holding their position to prevent a continuing resolution reopening the government due to health insurance premium subsidies that were adopted during the pandemic that are set to expire at the end of the year. There has been much speculation about the possibility of significant premium increases this year in the program through which 21 million people receive coverage. Republicans have indicated a willingness to negotiate over these subsidies, but do not want to do so in the context of a government shutdown. What all this means to me is that we are unlikely to see any resolution to the impasse until sometime after the premium notices are sent out to Americans who receive their coverage under the ACA. There is a palpable sense of indifference in Washington about this shutdown that’s different than in previous years and unless that changes we’re likely to surpass the longest shutdown in history, 35 days, on November 5, 2025.
What does this mean for clubs? Those clubs that use the H-2B or J1 visa programs may begin to see some impact on timing of reviews by the Department of Labor and we could see a delay of the release of supplemental visas by the Department of Homeland Security. Other impacts will be felt by businesses more generally but also have an effect on clubs, such as permitting through the Environmental Protection Agency (EPA), Army Corp of Engineers, Department of Labor and other enforcement agencies. The severity of any negative impact on the economy as a whole depends largely on how long the shutdown lasts. To date, the effects have been mild, unless you’re a government employee or contractor obviously, but that could change if things remain shut down into mid-November as I predict. The longer the shutdown, the greater the costs associated with the closure with estimates cascading as it moves into the three-week territory. Some estimates are up to $2 billion or more per day in lost economic activity and a reduction in gross domestic product of between 0.3 to 0.5 percentage points with those costs and reductions speeding up as the shutdown drags onward.
I hope this ends soon, but from my perspective there isn’t much catalyst for a change in circumstances until early to mid-November.
