✨✨General Discussions

I am a resident of a CCRC in Florida. I am a member of our “Gratuity Committee” (a committee that is under the Residents Association organization). 

Our committee collects voluntary payments from residents that we give to CCRC employees twice annually. The collection and disbursement activities are conducted by the accounting staff of our CCRC at no charge. 

Recent interpretations of the federal Big Beautiful Bill (OBBBA) appear to require that these gratuities cannot be considered "tips" and would not be excluded from taxation. As a result, since the gratuities are paid by our CCRC accounting function and will be considered part of employee wages, the gratuities will have approximately 22% (the average tax withholding for wages) deducted for eventual income taxes. This means our semi-annual payments to employees will be less than planned unless we add 22% for their withholding. The gratuity checks given to employees could be smaller than in prior years. 

We are soliciting information on solutions that other resident organizations are implementing to deal with this unexpected problem. Thank you. -Bob Dawson

In our Life Plan community in Washington, the Residents' Association collects and distributes the contributions. These contributions are not tax-deductible for the donors, and the employees do not claim them as wages.

Also in Florida.

Our Residents' Association is incorporated under Florida Statute 617 and recognized by the IRS as a 501(c)(4) tax-exempt organization. We collect from residents and distribute to employees, though in our case only annually. For convenience in the bookkeeping, we keep these funds in a separate checking account. (The Association has other activities.) This method allows us to define these as "gifts", not tips. The Residents' contributions are, of course, not tax-deductible, and the gift is not taxable for the employee.

In our community, we have a Residents' Association and a Residents' Council (Florida Statute 651) because the Association existed long before 651 mandated Councils. For all practical purposes, they are one and the same, the elected Council is the Board of Directors of the Association. I know of new facilities that have simply incorporated their Council so they don't have to deal with the dual structure. If you do incorporate and especially if you seek 501(c)(4) status, there are forms to be filed even though it is unlikely you'll have actual taxes to pay.

You could, theoretically, accomplish this as an unincorporated association but finding a bank that will give you a bank account will be a challenge. If unincorporated, there is also concerns for personal liability.

If this goes through the employer's payroll system it is going to be taxable to the employee, there is no way around that.

Ours goes through the corporate payroll system and is taxed.

Richmond Shreve

NaCCRA Board Member & VP

Forum Moderator

My "For Profit" LLC in California does as Richmond's Community does. The distribution is run through the corporate payroll and taxes are currently withheld. Management is attempting find a way around taxing but I have little hope they will pursue this.

About 2 years ago the Federal Banking Regulations changed and required the distribution through Corporate Payroll. We previously had a non-interest bearing savings account that was held in the Fund name and designated with the Council President's social security number. All monies were made payable to the fund and went directly to that account and Cashiers Checks were written once a year at Christmas time to each individual employee with no taxes withheld and it was designated as a "gift". Amounts were calculated based on the hours worked and only hourly employees were eligible to participate.

Luana Pinasco, NaCCRA President

916-709-6075

president@ naccra.com

Luana, thanks for your response. The "gift" approach is interesting. Was the change from that methodology to your current process the result of your resident association's actions or did your CCRC require the change?

When you said that "all monies were made payable to the fund", did you mean residents made checks payable to the fund or did you mean that your CCRC collected monies (such as an adder to monthly fees) and the CCRC made a single check payable to the fund?

Thanks again for your help as we wade through this changing landscape!

Bob Dawson

Robert

The methodology change was required as the banking regulations changed such that we could not continue the account in the Employee Holiday Fund name with the social security of the Council President. The bank was requiring a Federal ID number for our Resident Association, if we were to continue the account.

The Resident monies went directly to the account--Employee Holiday Fund either by checks written by the Residents or the cash was brought in by the Resident into our banking area for direct payment to the account. We provided all Residents with the Holiday Fund's account number.

After the cut-off date came for all funds to be received at the Bank. Two signors on the account went to the Bank and signed for the amount of the distribution to be made. An excel listing was made by the Council Treasurer/President showing the name of the employee and the amount of each check calculated by determining the percentage of the individual employee's share based on their individual hours worked as to the entire amount of all the hours worked within the designated period The bank wrote a cashier's check to each individual employee for their share.

We provided a card thanking the employee for their service throughout the year and explaining that they should talk to their accounting person as to any tax liability that might be due as a result of the funds they were receiving as a gift from the Residents.

The amounts ranged from a couple hundred dollars to as much as $5,000 in the last year.

I hope that this clarifies what was done at our Community and if you have further questions, please let me know.

Luana Pinasco, NaCCRA President

president@naccra.com

916-709-6075

Luana, thanks for the additional information. -Bob

Our treasurer worked for the IRS, and he says the following:

The "No Tax on Tips" provision is frequently misunderstood. The legislation does not exclude tip income from taxation — it creates a temporary above-the-line deduction of up to $25,000 for qualified tips, while tips remain fully subject to FICA taxes. 

Critically, it is not the law that makes the CCRC employees' gratuities ineligible for this deduction — it is the CCRC's own decision to not report pass-through resident gratuities as tips on employee W-2s, stripping employees in selected qualifying occupations of a deduction they would otherwise be entitled to claim.

CCRCs that report pass-through resident gratuities as bonuses and not tips, make gratuities ineligible for this deduction.

Your comment about adding 22% to the withholding to bring the recipient back to the intended level of payment reminds me of the compensation worksheets I used to do decades ago for paying U.S. expatriates whom my employer, a large US bank, sent overseas to manage our foreign branches. These expatriates were paid on our domestic payroll, as if they'd never left the States. However, because they would also be taxed by their host country, we had to "make it up to them" in a process called tax equalization. But it wasn't just an easy "just add to their pay" the amount they had to pay in foreign taxes, because that "add back" was considered by Uncle Sam as taxable income as well, so MORE needed to be added to cover the additional tax on that added amount. Then that extra amount was deemed taxable ... on and on. Basically, the final amount where the amounts became miniscule was determined by a forumla of diminshing returns. Complicated, I realize.

I suggest you check into this "add on" situation with a CPA firm.