On the surface, this sounds like a small decision. Either way, the waiter gets a tip, right?
In practice, there’s much more to it. Tipping in cash can have positive effects for the waiters, but it can also have tax consequences that you may not want to take part in. Take a look at the advantages of tipping in cash vs. credit and let us know in the comments how you tip and your reasoning behind it.
Advantages to Tipping in Credit
Convenience
If you’re already paying in credit, it’s definitely easier to just add 15% and sign the receipt. If tipping in cash, you need to have the right denominations of bills or you’ll be forced to either underpay the server or pay them more than you planned on.
Better Expense Tracking
It’s much easier to track one transaction that gets recorded by your bank than to remember exactly how much you tipped in cash. Budget software can pull in the credit transactions automatically, but you’ll have to manually enter the cash amount or you’ll be left at the end of the month wondering where that $40 went.
Rewards!
If your credit card offers rewards or cash-back for purchases, putting the tip on a credit card could net you as much as 5% back on certain credit cards. If you consistently dine out and use credit, it could add up to significant savings each month. After all, you signed up for the credit card to get rewards, right?
Advantages to Tipping in Cash
Saves Time for the Server
Paying in cash helps the server because they can use that to make change during their shift. Instead of heading over to the cashier, having cash available ensures quick transactions and other happy customers. So many tipping in cash will give a boost to the server in tips from other customers!
Cash Can Be Hidden
While Credit is certainly more convenient, when you hand cash to your waiter, the waiter has two choices: Report that income to the restaurant owner to it gets recorded on their tax forms, or slip it into their pocket and avoid the IRS. With wages being low and waiters relying on tips for income, it’s hard to fault them to want to keep all of it, even if it’s considered tax fraud.
If you’re a concerned citizen who wants to treat your server right but doesn’t want to help them commit tax fraud, your best move is to tip generously if you can afford it. That way, the server gets a good tip even after taxes and you don’t have to carry around a guilty conscience for enabling someone to steal from the government.
Reader, should we tip in cash only to help out our waiters? Should we pay in credit to prevent people from evading taxes?
For me it is mostly a matter of convenience. If I’m paying by credit, and there is an option to tip, I’ll use it.
I understand cash can help the server avoid paying taxes (I was a server in high school, so I know all about it). However, I’ve since realized that while we may not like to pay taxes, cheating on them is wrong.
Imagine if a server with two kids is pulling in $30k a year, but her W-2s only say $15k. She’s probably going to get a big tax credit and make a ton of money when she files for her taxes, and that’s going to come out of the pockets of the honest taxpayers.
I use credit because it’s convenient, and because I don’t support cheating on taxes.
It depends where I’m eating and the service I get. If I’m eating at my favorite thai place I’ll always tip cash and 20%. If I’m eating at a restaurant and the waiter / waitress decide I’m not worth their time they’ll get 15% charged to my credit card.
Sometimes I wish that prices were simply built into the menu.
-Ravi Gupta
@Ravi Gupta, I love it! Rewarding people not only with a larger tip, but by paying in cash too so they can avoid the IRS if they choose!
Wow. Just, um wow. Ive been reading you for awhile and enjoyed many of your tips but reading your implication that the majority of wait staff are defrauding the IRS and by tipping them in cash one might feel they are contributing and have a guilty conscience is just an ignorant blanket statement and a silly thing to say. My cash goes to lots of people and places every day. What they do with it has nothing to do with me. Period. The end. Im guessing youve never been a waitress… T
@Toddy, I didn’t say that the majority of wait staff are defrauding the IRS. I just said they have a choice, and by paying with credit, you take the choice out of their hands. It also helps avoid mistakes, because manual counting is much harder in a fast paced environment than simply adding up totals on receipts.
I generally put the tip on my credit card. Many places take the cash and give it to the person involved. As far as the tax implications, that is between the individual and the IRS.
Every restaurant treats tips differently and at mine, tipping by credit doesn’t take the choice out of my hands. Whether you tip cash or credit, I walk home with cash and no tips are recorded. So, if guilt is your problem, it depends on how the restaurant handles tips, and on the server. I’ll either report my tips or I won’t. You and how you do it have no influence.
@Lisa, Doesn’t the restaurant provide you with tax forms? They get no deduction if they pay you without recording it, so I imagine they would.
Personally, I prefer to use credit cards now due to the challenge at times of having the right bills on hand. I’ve encountered a couple of situations where getting change was like pullng teeth (I’ve shared a few of these on my site), and paying by credit takes that problem away. It’s just preferable for me anyway to pay the exact amount I want to pay, instead of letting it be dictated by bills/coins on hand.
I rarely ever tip in cash unless I’m paying cash for the bill, it’s just easier to use the card.
The reason I will occasionally tip in cash is that depending on the restaurant a server may be required to “tip out” the busser, host, bartender and yet claim all credit card tips. For example, lets say she makes $100, she tips the busser 20%/$20, the host 5%/$5 and the bar 20% bar drinks/$10. She now is earning $65 but her restaurant system won’t let her claim less than her credit card tips. So she may be taxed on income not going into her pocket. Out of four restaurants, two had the computers set up like that.