More on Tipping

In comments to my post the other day on tipping in restaurants, Michelle asks the following:

"Do servers prefer that we add a tip to the bill and pay via credit card or do they like cash?"

I can't speak for every situation out there, because I presume that this nation's thousands of restaurants have a different way of handling this, but in general, my experience in the two restaurants where I worked were that servers generally preferred the cash on the table to the tip added to the credit card. The preference wasn't a strong one, but it was there. In both cases, our computer system would keep a running tally for each server of how much money they had coming in tips from credit cards, and at the end of their shift they would print out a copy of their report, present it to the cashier, and simply be handed that amount from the register. So, in terms of the amount of tip money in their pocket with which the server walked out of the restaurant at the end of the day, it didn't make a whole lot of difference, and one clear advantage was that it did cut down on the amount of tips left as jingly change they had to lug around.

So why would they prefer tips left on the table? One word: Taxes.

One of the unmentioned secrets that never seems to get mentioned whenever I see an online discussion of the merits of tipping is that a large portion of tip income is never taxed. This is because it is up to the servers themselves to declare their tip income on a regular basis -- at the end of each shift, at the end of a week, whatever. The idea is that if their total tips are $100, they'll dutifully tell Uncle Sam that they took home $100, and their withholdings and W2's and whatnot will be adjusted accordingly.

It doesn't take a genius, though, to recognize that short of having managers or IRS employees actually frisk each server at the end of each shift, there's not much of a way to keep them totally honest about this. Sure, we had ways of ensuring that they claim as much as we could theoretically expect them to claim (and the IRS itself has something called "tip allocations" that really took a bite out of more than a few servers who tried to underclaim their tips to a ridiculous extreme), but the fact is that tip earnings are not taxed to the extent that, say, a line cook's hourly wage is taxed, because the earnings are never recorded accurately.

The big exception here, though, are tips left on credit cards, because these are entered right into the computer. If you pay with credit card and add a $20.00 tip to your bill on your credit card slip, yes, the server gets your $20.00 just the same as if you'd left a 20-spot on the table. But that $20.00 of income is reported to the IRS, whereas the server might only report, say, $10.00 of the 20-spot to the IRS. So it boils down to this: the greater percentage of a server's tips that are left as an addition to a credit card bill, the greater percentage of that server's income is actually taxed. So there's the answer.

Two additional points: First, this really only applies to restaurants where each servers keeps whatever money is left on his or her table. I suspect this is quite different in restaurants that "pool" the tips by piling every single tip into a bucket and then giving every server an equal share of whatever's in the bucket at the end of the night. And second, remember: this is really a minor thing. It's a preference, but not a strong one, and I guarantee that any intelligent server will prefer a larger tip on a credit card than a smaller one left as cash on the table. Plus, to be perfectly honest here, this is a topic on which I never really felt a good deal of sympathy for the servers. Once in a while one of them would complain about the unfairness of the way credit card tips are claimed in their entirety, to which my response was always some variant of, "Oh, shut up. You probably make more than I do, and you absolutely pay less in taxes on making more than I do. Boo-hoo. Go take Table 9 some more coffee and biscuits."

So, if you want to pay with credit card, go for it.

(I wrote more about tipping quite a while back, by the way.)