Several restaurants are now printing a “suggested gratuity” right at the bottom of the check. However, if you take a close look, you’ll see that restaurants are trying to bump up the tip by calculating the suggestion on the check total, not the total minus tax.
For instance, if the check total is $50, the suggestion claims the following:
- 10% = $5.00
- 15% = $7.50
- 20% = $10
This seems to be correct at first glance, however, the total includes tax and the tax is an extra cost that the restaurant neither charged nor keeps. By including the tax in the total, you’re basically tipping 10%-20% on the tax.
So, let’s assume that your tax rate is 8%. If the check total is $50, you really should be tipping on $46.30. The suggestions should then be:
- 10%= $4.63
- 15% = $6.95
- 20% =$9.26
To put things into perspective, if the suggestions for this check that includes tax in the total are followed, here’s how much you’re actually tipping:
- 10.80% = $5.00
- 16.20% = $7.50
- 21.60% = $10
While this seems minor, it probably is. However, you should be aware that the suggested tip is not accurate if you are depending on it to tip appropriately.
Vartan Christopher Simonian
lol – how did you notice this? 🙂
Michael
I use a program on my Treo (“Tip Assistant” by LandWare) that calculates the tip for me. I used it on a bill and saw that they had these rates at the bottom. So I used the tip calculator to figure out what rate they were charging on. Lo and behold, they included tax in their calculations. No way am I tipping on tax!
Vartan Christopher Simonian
I think that tipping on tax is tipping the government but having the waiter take the money. Now, sorry if I said something wrong there – I have no insight into economics – :P.
Michael
The government only takes the “tax” on the check. No matter what you base your tip on, the government doesn’t get anymore than the “tax” listed. Asking you to tip on the tax is just a way to artificially inflate the rate that you think you need to tip, thus increasing the amount of money the waiter or waitress takes home.
I’m certainly not against tipping, but I don’t think it’s right to list suggest tip percentages but have those percentages based off of the wrong starting number.
Sheila
The servers do pay taxes on their tips so I include that in the gratuity. Tips are taxable income.
Michael
So then in other words, you’re paying their taxes for them? I wonder how many servers actually pay taxes on the cash tips they collect.
Monique
No one is paying the server’s taxes. Our taxes are deducted from our regular pay (depending on the state you live in, FLA minimum wage is $7. Servers here get paid $4. So based on the hours we worked and claiming 100 percent of our tips, then sales, they deduct the taxes from our gross pay and then give us what ever is left over. My checks are normally 20-30 buck, depending on how much I made in tips. We tax the tips we receive by claiming them before our shift is done.
Michael
We all pay our own taxes. I pay sales tax on the meal I was served, and the server pays taxes on the money they earn. This doesn’t include the tax I paid as that money goes straight to the state. The server isn’t entitled (though it would be nice) to an additional tip for the cost of the tax.
Terri
Here’s a question: if you go to happy hour 1/2 price drinks. Do you tip on the total amount before the 1/2 price discount or tip on the final amount of the check?
Jamie
I don’t think it was suggested that you pay our taxes– though certainly you do, because you also pay our income. I think it worth note to mention that many employers allocate tips or pay service charges. Service charges is a gratuity that is evenly distributed through payroll. This does not mean that those gratuities go to your server. They go to dishwashers, cooks, supervisors (etc) as well. In which case, taxes come out of the paycheck, which includes service charges. Allocated tips means that your employer is telling the government that it assumes you made X amount based on your check totals which– you guessed it– includes the sales tax. Again, taxes for allocated tips are deducted from the paycheck.
In terms of a serving claiming 100% of his/her tips, many servers do. It is actually beneficial because it increases your income in terms of lines of credit. It is also very difficult to flub your way out of during audit time, considering the majority of your tips are calculated out through the machines that your server enters and closes your orders on.
As for the (sub)total discrepancy, those percentages are often determined by the people who maintain the machines, who (more often than not) are not in the restaurant business, so take it up with them. But keep in mind that those tips aren’t just going to your server. Your server is tipping out her cooks and her bussers, and her runners, and her bartenders, and her host/ess. I think they collectively deserve the extra 60 cents.
John
Really? How cheap can you people be? Go eat fast food if you want to be such a penny pincher.
Dw
If your that tight just stay home and light the grill, oh but then you’d have to gripe about paying tax on propane
Michael
This post wasn’t a gripe. It was just providing information about an observation that many of us encounter frequently.