Economy

What This Customer Gave Instead of a Tip

In lieu of a "tip," a customer at a Missouri restaurant gave their waitress a "personal gift" — in the form of cash — last week.

"Taxation is theft," the customer wrote next to the tip section of a receipt. A second note read: "This is not a tip. This is a personal gift and not subject to federal or state income taxes."

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Though the note seemed to reflect an individual's broader, ideological attitude toward taxation, it also inspired debate over wages in the food service industry. When you give a waiter or waitress a "tip," that directly factors into their salary if they earn a tipped wage, meaning it's taxable. The federal minimum wage for tipped workers stands at $2.13 per hour.

If a tipped worker doesn't earn what they'd make under the federal minimum wage at the end of the week, the employer is required to pay them the difference. But as FiveThirtyEight noted, "that doesn't always happen." Some tipped workers like the system, whereas others complain about the inconsistency of their daily earnings.

waiter-holding-tray-of-plates

At the end of the day, both tipped wage and minimum wage workers struggle to make ends meet — and so the idea of gifting them a cash gift, rather than a taxable tip, prompted debate on Reddit, where the customer's note was shared on Sunday.

One of the main themes in the comments section was that not claiming cash tips as taxable income is a relatively common practice in the food service industry. That said, another former waiter explained that he claimed all of his cash tips "because it's income I want credit for when applying for loans and shit" and that if he did exclude his tips, "at least a quarter of my income would be invisible."

Not claiming tips for tax purposes is illegal. It could also put you at risk of being audited. But what about when the customer explicitly states that the cash they left on the table is a personal gift?

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An Internal Revenue Service (IRS) spokesperson conceded that he'd never heard of such a situation and declined to speculate about possible legal implications. He directed ATTN: to the agency's "Tips on Tips" guide, which emphasizes that "income received in the form of tips is taxable."

Wait a minute, aren't "gifts" taxable?

Indeed they are, but according to the IRS, a gift would need to exceed $13,000 to be subject to the tax — which would be one hell of a tip.