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Always Tip With Cash
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Whenever possible and convenient, I try to tip with cash. When you tip with a credit card, there is an electronic paper record of the amount you tipped for service. When it comes time to report earnings at the end of the year, all of that tip is counted towards the earnings of that individual. When you tip with cash, there is no such paper trail and it is the individual’s own responsibility to declare how much they’ve earned in tips.
Ask any waiter or waitress about how they treat tips and, if they’re honest, you’ll get one response – they don’t report all their tips. When you’re making a piddly $2 per hour in salary and live off tips, you’ll find that cash “disappears.” (though it would be impossible to prove this) But honestly, these individuals work their butts off for a small payoff and they can would appreciate all the help they can get. So, if you’re the type that tips big because you understand how hard it is to be a server, hook them up by using cash – it’ll invisibly bump your tip percentage up a few points.
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I always wondered about this. I made it a policy to tip in cash, but a friend told me it made no difference. Then a friend, a former waitress, told me it’s very much appreicated.
The lesson? As always, when in doubt, trust a former waitress…
Thanks for the “tip”
Nice gesture to tip in cash. I also find that if people tip in cash they stay in the 15-20% range of tipping but with credit cards it’s much easier to tip considerabaly more and not really think about it!
So we should assist them in evading taxes?
j/k Interesting justification for cash tipping.
Not to appear a scrooge but this post could also be titled “help others commit tax fraud”. At what level of income is it ok to cheat on your taxes? I tip generously for service provided but I’m not changing my methods so others don’t have to pay taxes like I do. Working to legally reduce your tax burden I’m on board for 110%, using dubious deductions and underreporting I think is unethical (no to mention illegal), no matter how hard you work or your job sucks.
I very much agree. I too will not change my methods of tipping to help others commit fraud.
Income taxes are supposed to be paid on income, which includes tips. I’m sure most folks would like to make a little extra by paying a little less in taxes, but that doesn’t excuse tax evasion. If everyone else is playing by the rules, why is it OK for waiters to cheat?
If the problem is that waiters don’t make a livable wage, it seem like the appropriate fix is to address their wage rather than by encouraging fraud. It’s also debatable how much this helps — in many cases if a waiter’s reported tips are too low, their employer must “assume” their tips are a certain amount, and report that as income. Which means that, first of all, unreported tips _do_ show up on someone’s radar screen and, second, they may not help anyway.
Think about it this way, whatever money the government doesn’t collect from waitresses not reporting their tips, it has to collect from somewhere else.
I’m with samerwriter. If you don’t like the tax regime for servers, fix it, but don’t help them game it.
Yeah plus think of all the lost rewards points you lose by not using your CC
I pay everything with credit cards, including tips. Never thought of paying the bill with cards, but tipping with cash. If I want to help them, I can always tip a little more, but that’s not to encourge them to hide their incomes.
Yes, this could be titled “help people commit tax fraud.” Or it could be titled “get realistic about life and let people make their own (bad) decisions.” That $1 goes a lot farther for that person than it does the government.
That’s good advice. You know what they say about the waitstaff
“They’re never broke, but never rich..They always have a little of cash on them”
Of course if you’re part of the Million Dollar Savings Club, then you’ll always have plenty of cold hard cash to tip with
- Bryan
http://www.BryanCFleming.com
C’mon, you’re really advising your readers to help others evade taxes? The waiter/waitress agreed to the job knowing the salary and the conditions. If they’re anywhere near minimum wage, they’re in the lowest tax bracket so they’re probably not paying much percentage-wise in taxes anyway. What’s so special about their position that makes it OK for them to break the law?
A few years ago we tried to hire a part time nanny for my kids, and through the “agency” we used to find one, we actually had a hard time finding one that was willing to pay taxes. As their employer I’m supposed to withhold tax from them, and pay more employment taxes on top of their salary. Even though we told the agency up front that we only wanted candidates that were willing to pay taxes, several of the people they sent out were not. This was in the $10-12/hour range, which you might consider high or low depending on your perspective, but either way, they should be paying their income tax the same way you and I do. Do you think it’s OK for nannies to be paid in cash and not report their income too?
I’m not going to change my habits to make it easier for someone else to break the law.
Jim, $1 may not seem like much, but multiply $1 by a billion and it becomes a large number.
A single instance of insurance fraud doesn’t really hurt anybody, but when it’s done over and over you and I pay for it in our premiums.
Stealing a candybar from a store doesn’t affect the bottom line much, but it’s still wrong and shoplifting costs add up.
The point being that small numbers can add up quickly.
As Steve pointed out, a dollar in taxes that a waiter doesn’t pay is another dollar that you and I must pay. If the government doesn’t really “need” that dollar (or, more likely, the billions of unreported dollars) then they’re free to lower taxes so that everyone benefits rather than just the wait staff.
Yes it’s OK for nannies to be paid in cash and they can do whatever they want with it – pay taxes or not. If you were using their desire to pay for taxes as a proxy for their morality (and thus their ability to care for your children), I fully understand. However, if you were just doing that because you want everyone else to pay their taxes, I would think that’s a little too judgmental.
I wasn’t using it to judge their morality or anything else. *I* would be evading taxes if I didn’t withhold income tax from them, and send it to the IRS along with the extra employment taxes I needed to pay. *I* was not willing to break the law, and I found it amazing that so many nannies out there weren’t willing to agree to that arrangement. In the case of tipping, you’re not breaking the law by paying in cash, but if you pay a nanny in cash and don’t send in the employment taxes, you’re actually in more trouble than the nanny. It’s not enforced very well (otherwise I imagine it wouldn’t be so widespread), you usually only hear about it in political races where the opponents expose a politician for not paying their “nanny tax”.
One part that really struck me when I read up on the subject is that the most likely way for an employer to get caught is when the nanny, maybe many years later, tries to collect social security or make a medicare claim. The money isn’t there since the taxes were never collected, and when the nanny says where they’ve been working, the employer is in a heap of legal and financial trouble, owing back taxes and penalties for all that time. Better to pay the taxes, I think.
Overall I have to say I disagree with you on this one, Jim. Encouraging people to break the law is wrong.
Stealing is wrong, tax evasion is wrong, I don’t dispute that and I don’t advocate that waitstaff evade taxes. However, I’m realistic and I realize it happens and paying in cash costs me very little.
Jim-
Have you been drinking? Judgmental? Thinking everyone should pay there own legal tax obligation is judgmental?
I don’t tip because society says I have to. All right, if someone deserves a tip, if they really put forth an effort, I’ll give them something a little something extra. But this tipping automatically, it’s for the birds. As far as I’m concerned, they’re just doing their job.
Judgemental was likely the wrong word; I think that I should do what’s right according to my values (which is to follow the law, pay my taxes, be a good citizen) but what other people do is their own business.
I also didn’t realize that when you hire a nanny that the hirer had to withhold taxes for the nanny, which opens up a whole different can of worms. I also wouldn’t want someone who evaded taxes to watch my kids.
your just wrong on this one jim. i also believe it is an unethical position to take.
I tip with cash when I can, not because it gets reported but because the credit card company gets to take their bite out of it as well but they’re taxed on the full amount of the tip. At least, that’s how someone explained it to me. It might not be correct either but I figure cash is easier in the long run.
The ethics of it are an interesting question.
Legally, you’re obviously not obligated to make the person report the tip, or to make it any easier for the government to collect taxes.
IMO, if the motivation for tipping in cash is to make it easier for the person to evade taxes then you are on pretty shaky ground ethically.
If the motivation for tipping in cash is so the credit card company doesn’t take its 2% cut from the bill (I assume that the tip is also reduced by that amount), then that seems ethically sound.
However, if one’s _real_ motivation is the former and he just uses the latter as an excuse, well then that’s sketchy again
I will make a note to pay with my credit card more often. No one should evade paying taxes. I don’t care if they make $.01 an hour, they should pay taxes. I don’t get a free ride and I won’t help anyone else get one.
-Erich
I wonder how much age plays a factor in people’s decision on this because most of the people I know, in my age range, try to pay cash because of the income declaration reason (not the credit card fees reason) and this is especially true if they ever worked as a waiter.
Is it ethically wrong to do something that is inherently legal but could lead to illegal acts by another person? That’s a tricky subject…
I usually tip the same way I’m paying the whole bill. But, after reading the post and comments, I had a thought: Tax issue aside, tipping with cash gives the waiter immediate use of that money. When you tip with a credit card, then they would have to wait until pay day to get that tip. Or at least that’s my assumption. I could be wrong – maybe the restaurants cashes out the tip receipts at the end of the night. Or not. Either way, it probably varies by restaurant.
Credit card fees is a good point. Even if the waiter doesn’t get hit with paying them, the restaurant will, and that’s an expense that gets passed on to the customer.
As for not tipping becuase they’re just doing their job… If you have a job where you get tipped or make commission, then the employer doesn’t need to pay you minimum wage. This may vary by state, but generally that’s the way it works. Of course, waitstaff is a popular NYC restaurant may make more than minimum wage plus tip. But, my point is, if their wage is supposed to fuly compensate them without any tip, then their hourly wage would more that what it is. The way I see it, a tip gives tem incentive to do their job, and gives the customer the ability to signal to them when they fail.
I used to make $1.10 an hour waiting tables, so I empathize with servers. I’ve been telling my husband to tip cash for years, and we will dig for cash for a tip. If we don’t have enough cash for a decent tip, we give as much cash as we have then put the rest of the tip on the card. The only time we put the total tip on a card is when we have no cash.
I usually do not tip cash separately from my credit card charge. Unless I have some “funny money” like Sacajaweas or half dollars. Then I’ll tip with cash.
Jim, I don’t think it’s “ethically wrong to do something that is inherently legal but could lead to illegal acts by another person.” You’re not responsible for the other persons actions; however you’re suggesting taking actions for the sole purpose of enabling another person to commit illegal acts. I would definitely consider that immoral.
I always tip with cash, for this very reason. A Consumption Tax instead of an Income Tax would negate this whole discussion.
As a bartender I appreciate the cash tip……it makes up for those that run a $1200 bar tab and then leave NOTHING…you call it tax evasion I call it commerce…you ever barter a service with someone I’ll mow your yard if you cut down my tree? You claim that on your taxes? One of you should since it wouldnt be a complete wash someone came away making out better on that type of deal.
Maybe the answer is to add a VAT or something similar like they do in Europe that way everytime you come in regardless of how I treat you I still get my 18% gratuity? Any takers?
I am not going to disagree that the tax system (among many others in this country) is BROKEN but until we get some non-professional politicians in office nothing is going to change
I always try and tip in cash, but often am not carrying any. I use credit cards for 90+% of my purchases.
As far as the tax evasion argument goes… eh. There is plenty of commerce going on that the government isn’t collecting taxes on. Why do you think there is a steady pressure to do away with cash?
Wow – Jim, your under the gun on this one . I always pay by bill + tip with a credit card. Mostly for the rewards and convenience of tracking my expense in my pf software.
After reading all this I don’t think Im going to change my ways.
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When I used to wait tables — ages ago — the only time a cash tip was better than a CC tip was if it was above the flat percentage of sales that my employer reported to the IRS. All tip revenue was reported as % of the bill. I think it was something like 8%, I don’t remember exactly. CC tips may have been reported as actual, but I’m not even sure that was the case. So if I was averaging less 8% or whatever (and it only took a few jerks to lower this average), I was getting screwed by the IRS. Someone’s due a break here. (I still tip on my CC for convenience, though.) I think it really depends on the sophistication and accuracy of the sales system and the server’s own bookkeeping system. Anyway…
Business owners usually leave everything on a CC because dining out is – in certain situations – a tax deductible ‘expense’ and the charge slip conveniently provides the needed documentation.
Interested in frugality?
Individual income earners pay tax on ALL income before it can be spent. Corporations pay taxes only on what’s left after it’s been spent.
I’m not saying it’s fair, but it’s lawful and that’s the way it works. Everyone (on this post!)should have a corporation, or at least a Sole Proprietorship of some type.
Good luck to all -
Walter
You know, there’s a lot I could say, but it looks like everyone else has said it for me already. Generally I figure you to be pretty level headed, but this time I’ve got to assume maybe you were trolling for some extra traffic? Surely you don’t actually think that this “real world” is so broken, that we might as well step outside the boundaries?
I do appreciate the “tip” to tip with credit cards from now on, though..
Besides, with credit cards, you know the guy at the next table isn’t going to walk off with it before the wait staff gets back..
If they can get away with paying less in taxes, great for them. If I can help them do it without risking a prison sentence of my own, I consider that a moral obligation. Too bad it’s way harder for most people.
Matt: “if they can get away with”?. C’mon, you could probably stuff your pockets full of stuff at Walmart and “get away with it” .. but as a result, I’ll need to pay more for my stuff next time I’m in there. Should I encourage you to try and “get away with it”?
There’s a major difference there, though. Wal-Mart paid for that stuff. Until I pay them for it, it still belongs to them, and for me to sneak it out of the store would be stealing, and stealing is wrong.
The government did not earn the tip…the waitress did. The waitress is the one doing the work. And the fact that the armed men who’ll come after her if she gets caught not paying them enough protection money are called “auditors” instead of “extortionists” doesn’t change the fundamental nature of what they do for a living, nor does it change the moral imperative to resist them whenever practicable.
Note to folks who know who I am: _I_ don’t cheat on my taxes. I paid accountants and lawyers a whole lot of money to make sure it was _legal_ for me to pay as little as I do. But waitresses don’t have the kind of financial resources it takes to do that.
I suppose this is a never-ending discussion, but I’d say the government has already paid for the roads, utilities, etc that you enjoy every day. They simply ask you to reimburse them based on the amount you can afford, by summing up your total income, tips and all. If you can afford to pay lawyers and accountants to find the loophopes, then you can save some cash, but I think that’s the exception, not the rule.
-d
Tiping with a CC:
Pros – The server gets their tip – Usually at the end of the night.
It goes to your rewards/airline miles/refund/bonus total.
Cons with CC: It reduces your available balance for more important things.
Pros for Cash –
They get their money – usually. In larger restraunts, with many servers on the floor, it’s easy to “Pick up” someone elses table, esp during breaks, or shift change.
Cons –
They may, or may not get their tip if they’re leaving work – Then again, if their head’s out the door, your service will probably stink.
Cash is great – but it usually gets reported on the back end anyway
(As a busboy at Sams Town for over a year, I got to have the office talk – everyone heads into the office, and “tells” our managers how much we make, once a year, And even for the graveyard shift, all the servers WILL try to pair down how much they “REALLY” make.)
All in all, TIPS stands for:
To
Insure
Prompt
SERVICE.
If you didn’t get it, don’t leave it. As much as we’d appriciate it, it’s better to be held accountable for our service. Yo to Scott at Sam’s Town
Go Drift!
EC
If your rich uncle gives you a $12K gift, it’s totally tax exempt
If you don’t have a rich uncle and instead 1,200 people each give you $10 then it’s taxable.
Explain how that’s fair?
Well, if they gave you $10 as a gift, then none of that is taxable. If they gave you $10 for service, then it’s income and it’s taxable.
As both a taxpayer and former waiter I have this to add…
Waiters don’t “choose” their job as some people in this thread have suggested, but rather we take a job because we have to. Not many people decide they want to serve a bunch of ungrateful demeaning jerkwads for a living. Don’t get me wrong there are a lot of genuine nice people out there, but they seem to pale in comparative numbers to the former.
Now then, how is it that the government can take my tip money? You go to work, you get a paycheck, and they take their cut out of it in taxes. You take whats left and decide I did a great job serving you, so you leave me some of that Post-Tax money. Guess what, they want to RE-TAX that same money.That does not seem fair to me. Right now in my current profession I lose 30% of my pay each week to taxes, then I take my POST-TAX dollar, or .70 cents as it were, and buy a bagel for lets just say that same amount. Of that sale, the government gets another 8.75% (NY) of that, so another .06 cents. Then the Bagel man has to pay them another 15-30% of that (depending on how good his account is) where does it end?
Im all for taxes, but if people are going to start a rukus over WAITERS avoiding taxes, how focusing on EVERY CORPORATION IN THE COUNTRY. The corporation was created specifically to avoid paying taxes, for no other reason that to protect their own money from the government. So how is that different from a waiter not reporting a $2 tip?
More reasons to tip in cash:
As a former waitress, I can give you several additional reasons.
Denise already touched on one tax-related issue. About fifteen years ago, I was waiting tables and reporting an accurate number every night for tips, as a matter of principle. Most nights this came to more than the 8% of sales that is mandated. One night it did not. When it came time to file a tax return, guess what? I got royally screwed for that ONE night of under 8%–penalties, fees, and extra fees to the accountant who had to figure it all out and fix it. I think it cost me about $75–a measly sum to many, but for a starving graduate student waiting tables to pay for the ramen noodle dinners I was eating, that was a fortune. I was ticked. Do you want to guess whether I continued to dutifully report my exact numbers each night?
Now, for several non-tax-related reasons. One: Some restaurants (especially those where you pay at a check-out station rather than at the table) rely on the organizational skills and good faith of whatever underpaid and probably underachieving person is manning the cash register to keep track of CC tips and make sure they get to the right person. Do you want to guess how many of those CC tips actually get passed on to the person who earned them? Cash on the table, however, is usually spied very quickly by the appropriate person and picked up. Better yet, hand the money to the server directly if you can catch her/him at a non-busy moment–but don’t make a big deal out of it. You don’t need her to kow-tow her gratitude. You just want to make sure the right person gets paid.
Two: Cash is pleasant. It’s nice to have a pocketful of the stuff gradually bulging your apron over the course of the evening. It gives you something nice to think about while you’re grinning servilely at the obnoxious guests who think it’s fun to send you back to the kitchen for something else every time you bring them something, whether they actually need it or not.
Three: Immediate gratification. Some restaurants do in fact wait and pay CC tips at the end of the pay period. This means, instead of rent (or ramen dinner) money tonight, I get it next week some time. While some may say I should learn better money management skills so I don’t *need* the money right NOW, I think most business people would agree that cash flow is a very important factor in any financial plan. You know, time value of money and all that. Go ahead and make sure your server gets the money now–after all, even if they’re flush enough to sock it away somewhere for a rainy day, they’ll get seven or ten extra days of interest on it. Tell the bank that doesn’t matter and see what they say.
So, regardless of whether you approve of servers avoiding taxes or not, there are plenty of reasons to tip in cash when you can. I’ll admit, I do sometimes add the tip to the CC receipt (especially in sit-down restaurants where you pay at the table, so I know the server will see it him/herself) when I don’t have enough cash. But I also often deliberately leave cash in my purse for the specific purpose of tipping. It’s also handy to have some ones on hand to offer street people and homeless folks who ask. But that’s just me, and an entirely separate issue altogether…
I have heard that the Fed assumes all waiters/ waitresses lie a bit about income, and adjust accordingly… so in the long run, it prob’ly wont make to big a difference for the taxes. My friends who are waiters like the cash, less of a hassle to deal with.
The law is to pay your taxes. Where did you learn it was ok for you to cheat the government. If you don’t like working for tips then get another job.
I LOVE cash tips, but not for the fact that they can “disappear”…
The restaurant that I work at not only charges us a credit card processing fee of 2%, but they do so on our total SALES.
So your dinner bill comes to $100, you leave a $20 tip on the credit card, I’m charged (by my employer) $2.40 for the whole transaction out of my creidt card tips at the end of the night. Your $20 tip to me leaves me with $17.60 tip when it’s all said and done.
Now, if you leave me a cash tip, my employer only takes out $2.
The only way I’ll get the whole tip that you intend for me to is if the customer pays the whole bill and tip in cash.
Anyone know if this is even legal? and who would I go to?
Everyone should always tip in cash, and hand it directly to the person they intend to give it to.
If you leave it on your charge or credit card, managers at restaurants will in most cases STEAL it from the people who do all the hard work. It will never FULLY make it into the pocketbook of your underpaid, overworked server.
I once thought that tipping in cash helped them to report what they wanted to the IRS but a bartender set me straight. The IRS expects you to get a certain amount any way and treat it accordingly. They know how much the place you work serves and brings in money wise. Nobody is getting away with much. The IRS always gets theirs.