What is a Tip?! And what is not?


It’s a complicated subject. Restaurants have gotten in trouble for saying that charges were used for a particular purpose and then using them for some other purpose.


Wow, super confusing (the issue, not your post or the article).

I know it’s been discussed here already, but, given the ruling, what is the point in creating a service charge line item? Is it just so that restaurants can put lower prices on the menu so that customers aren’t scared away?

I would prefer the restaurant to just raise its menu prices (or better yet, including tipping), but the general population obviously may not agree.


A service charge may not be counted as gross receipts, a percentage of which often goes to the landlord.

Ah, yes, I think you had mentioned that b/f. Is there a tax benefit to having a separate line-item for a service charge?

I guess part of this whole issue will be employer transparency w/ employees (ie., spelling it out ahead of time whether the service charge is treated as part of the wage or as a tip).

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And what’s taxable?

I don’t think there’s any tax advantage to service charges vs. raising prices in California, since sales tax and gross receipts tax.are charged on both.

Service charges are often used to cover health insurance and other benefits rather than simply passed along like tips.

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