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Your Take: Tipping, Taxes & Social Norms

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Tip JarWhat do you think of Ron Paul’s proposal to stop taxing tips? I think servers everyone would love it but it might have some unintended consequences if it were to pass (which it probably won’t). If we were to stop taxing tips, the minimum wage laws would probably have to be adjusted to account for this law and tips would likely go down in the long run (since tips were suppose to supplement a much lower minimum wage).

I’ve personally never liked the idea of tipping because things are so inconsistent and subject to interpretation. The only general rule that has persisted throughout time is that you tip 15% for good service at a restaurant, 20% for great service (which has probably inflated over the decades). Then some restaurants automatically add 18% for large parties, so is 18% the norm or is 15%? What about great service at an inexpensive restaurant? What about at a coffeeshop? Or any number of places with a tip jar? I checked in at a golf course and my receipt had a line for a tip, am I supposed to tip the guy who swiped my card? (I didn’t, nor do I think I need to)

I think it would be great if tip was socially accepted as optional and should be given when service is above and beyond. Servers should get minimum wage, not a BS minimum wage that accounts for tips, and tips should be counted as compensation and taxed as such (and I expect people to fudge their tip numbers, just as they do now).


(Photo: juliejordanscott)

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20 Responses to “Your Take: Tipping, Taxes & Social Norms”

  1. Shirley says:

    I believe that tips are a personal thank-you gratuity for good service and should have nothing whatever to do with the amount of wages the employer pays the servers. The employer should not be able to control how much the server receives in tips by sharing tips or by subtracting them (or a % of them) from their wages.

    Yes, I feel that tips should be counted as income and taxed as such, as is a bonus, but I don’t feel that the employer should be involved in that in any way. The W2 should reflect only what the employer actually paid the server; the server reports the tips received and it IS income.

    We tip well for good service and I don’t expect it to have to be shared among all servers, nor do I want to see any part of it going into the employer’s pocket.

    • Jim says:

      Sadly, at a lot of places, the employer does take a piece of the tip. Sometimes they divvy it up fairly with the bussers and whatnot but I’ve heard of plenty of instances where they just keep it. The most tragic is when the host or hostess gets a piece just for walking them to the table (this is at regular places, not at uber fancy places where the host is only the host).

      • Texas Wahoo says:

        Why is it tragic when a hostess gets a portion of the tip? I’ve always considered tips to be a reflection on the restaurant as a whole. I will tip more generously if my experience is positive – which is more dependant on the waiter and the cook, but is partially dependant on the hostess as well.

      • skylog says:

        having worked in a restaurant, your comment cracked my up. it is unfair, as it is somewhat of a blanket statement, but i have known quite a few hostesses who certainly did not deserve a dime…although many of them were. lol.

        at least in my experiences, the hostesses were paid a higher hourly wage and did not receive any tips.

  2. cubiclegeoff says:

    From the article, it looks like it only impacts salaried employees that get tips, which would ignore the far majority of the service sector that are paid hourly.

    I do think it is ridiculous that the minimum wage for the service sector is so low and based on the idea that a worker will get tips, and then the tips are spread out between a variety of workers, including the host and salaried workers. However, I don’t see a problem with the low minimum wage IF the individual keeps all the tips they receive and does not have to share them.

    Paying taxes on tips is always hard and I’m not sure how the government can truly figure out how much each person makes in tips unless the person is fully honest and keeps good records. But I don’t think not taxing this income is a good idea.

  3. mannymacho says:

    I, too, wish that tips would be just done away with – or move to the Denmark standard where you only tip a small amount at fine restaurants for great service. I’ll gladly pay 15% more for my food items if I know that’s the true cost of them.

    • skylog says:

      i agree. i am not sure we will over get to that point, where tips are truly based on merit. i wish we would. i just simply do not like that it is more or less “expected” that no matter the level of service, a certain percentage will be given.

  4. freeby50 says:

    Doesn’t make much sense to me to exempt tip income.

  5. Sun says:

    Servers are taxed 8% on tip whether they report it or not, based on the subtotal before sales tax (if any).

    Taxing tip like a bonus is a bad idea because that will be taxed at 50%. When capital gains are taxed at 50% or more will be the day I support tips to be taxed at 50%.

    Whether you like it or not, businesses nickel and dime you. We have no real consumer advocacy government group that can be the Shepard for consumers. So, we just end up with hidden fees that we should just be aware of for now.

  6. govenar says:

    I think restaurants want to keep the current tip system rather than raise menu prices, since it fools people into thinking the prices are lower (when they look at the menu they probably aren’t mentally adding 15% to every price).

  7. Gil Kim says:

    Did make you modify your post?

  8. Cheryl says:

    First of all, tips were not designed to make up the difference in a person’s income. Tips were “To Insure Prompt Service” and an Ann Landers article I read years ago said that initially tips were placed on the table at the beginning of a meal to encourage the server to give the good service required to get the tip. I agree with the posts on here that it should not be expected, it should be what it was meant to be…a reward for service that is above and beyond the norm. I also think it’s ridiculous that I am expected as a customer to make up the difference for a company’s poor hourly wage. The restaurant industry should be held to the same minimum wage standards as every other industry. Finally, I think tipping has extended beyond the scope of what it was originally intended for. Case in point – one poster’s comment about the tip line for the golf store employee who swiped his card. I’ve even seen tip jars at buffet restaurants. It’s crazy and excessive.

    • Jim says:

      I totally agree, but what can anyone do at this point?

      • Shirley says:

        After the bill has been delivered and you have seen it, you can signal the server and put the cash tip in his/her hand with a verbal thank-you for a job well done. However the server decides to handle the tip after that is entirely up to them but you know that you have given them that choice.

        If a credit card is used to pay the bill with a line for the gratuity, be sure to write a zero with a solid line through it from one end of the space to the other.

  9. Cheryl says:

    PS – I remember when a good tip was 10% of a bill. Then it went to 15% and now 20%. The logic was supposed to be that servers needed an increase. But as prices go up, the value of the 10% went up, too. So the customers get the short end of the stick bec. they pay higher restaurant tabs AND give higher tips based on a higher percentage.

  10. I try to be very respectful with my tipping. If the service is good, I try to tip accordingly. While percentage based is a good method, I prefer a flat amount, that also varies based on the service.

    I began to notice how unfair the percentage based tipping was when we would eat at cheap restaurants, and I’d get excellent service, (tipping a good 20%), then poor service at an expensive restaurant (tipping more like 10%), and the second tip was often better than the first!

    So, now I have started trying to pick a flat amount (based roughly on the number of diners), and alter it based on service. That way, the server will be rewarded for their service versus just for the inflated cost of the meal.

  11. ziglet19 says:

    I really hate that everywhere I go they have a tip jar, even when I stand in line, pay at the cash register, and then come pick up my food at the counter when they call my name. I go to several places like this and they all have a tip jar. Just what am I tipping for? I am happy to tip at a restuarant when a server comes and takes my order and brings my food to me.

    • cubiclegeoff says:

      I think it’s worse when they have the tip line on the credit card receipt, even for a place that only does takeout. Then they see you not filling it out and they sometimes give you bad looks. I think the tip jar is more of a hope and if you don’t they don’t think much about it.

  12. Grant says:

    Planet Money (an NPR podcast) just had a story covering this. It was pretty interesting and touched on the true history and purpose of tipping. Here is the link if you’re interested:

  13. gilbert peralta says:

    Obviously I support Ron Paul’s bill HR 1139. However I don’t necessarily agree with the social pressures to tip so much and so often. I only tip when the service is great.

    Regardless of my feelings on tips, I would love to see Americans embrace the mentality that our income should not be taxed by the feds. Until Ron Paul abolishes the IRS, please support his bill HR 1139

    Take care!

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