Interesting article on U.S. Tipping

[Lorenzoid]

So it is a tax avoidance scheme: deliberately making it a cash system, so it's harder for the IRS to prove someone has not declared a specific sum....

I would not call it a tax avoidance "scheme." Some, but far from all, taxpayers might try to cheat the system by under-reporting tips or other cash payments. Cash payments such as tips are just one of many areas where it it is left up to the US taxpayer to report and properly characterize the payment or other event for tax purposes. There is nothing special about tips. If we choose to tighten the rules to reduce under-reporting of cash tips, we had better be willing to tighten other tax rules, or tipped employees will protest that they are being singled out.

 

[Angelo Farina]

For me, it's all fine that 'they' have some kind of scheme going on. But don't expect me to fill in the gaps with cash.
If someone goes out of his/her way for me, (s)he can expect gratitude in the shape of a tip. But I won't be very happy being at the worst end of a deal I did not agree to.

Instead I am not really happy that "they" have a scheme for avoiding taxes. They are stealing money from me.
My taxes could be smaller, if all workers were paying. As a fraction of workers do not pay taxes, I am charged an higher taxation for compensating.
Furthermore, public services suffer, as the public administration is in lack of money, and so they are forced to cut services.
People evading taxes are true criminals for me, and giving them my money is very disturbing.
I would much prefer that service was on average rated at 30% of the bill, instead of 15%, but that the money paid was properly taxed, and a that a tax-traceable receipt was provided.

 

[Lorenzoid]

If someone goes out of his/her way for me, (s)he can expect gratitude in the shape of a tip. But I won't be very happy being at the worst end of a deal I did not agree to.

If you visit a restaurant in the US, I would argue that you are implicitly agreeing to the system when you walk in the door. As I said in a previous post, it's not fair to expect visitors to know that, but not knowing a rule is rarely a valid excuse for breaking it.

 

[Rob9876]

There are people who reduce their tips to "punish" poor service, when it would be more appropriate, in my opinion, to tip the full 20% and at the same time make sure the employer is aware of the poor service.

Go ahead and tip 20% for poor service? Respectfully, heck no! To me this attitude is a big part of the overall problem. I very much disagree with prior posts about "stealing" -- no one has a right to a tip, it is a gratuity (a gift) for good service, and I have never agreed (even tacitly) to ensure these employees make a certain wage even if they provide poor service.

In the U.S., if an employee makes less than minimum wage, and employer is required to make up the difference between the tipped employee rate of pay and the regular minimum wage. So, contrary to what people usually say, everyone is already guaranteed at least the minimum wage. But generally almost all tipped employees who halfway try make a good bit more than minimum wage -- that's why the employees don't push for a fixed wage. And those that are so bad at customer service that they can't earn enough move on to other pursuits -- like the DMV!

 

[Angelo Farina]

If you visit a restaurant in the US, I would argue that you are implicitly agreeing to the system when you walk in the door. As I said in a previous post, it's not fair to expect visitors to know that, but not knowing a rule is rarely a valid excuse for breaking it.

In fact when travelling to USA I carefully only choose restaurants which advertise a "service included" policy.
And when paying I always leave the "TIP" line on the credit card machine empty. If the service is included, no tip is due...
If all customers do as me, restaurants providing no "service included" policy would need to change their policy quickly!
But perhaps someone here instead avoids the restaurants with "service included" policy? In the case, can you explain why do you prefer no "service included"?
I am always very curious to understand the cultural differences, and to be enlightened about the reason for which such a tax-evading scheme is socially accepted in the USA.

 

[Cheizz]

I would not call it a tax avoidance "scheme." Some, but far from all, taxpayers might try to cheat the system by under-reporting tips or other cash payments. Cash payments such as tips are just one of many areas where it it is left up to the US taxpayer to report and properly characterize the payment or other event for tax purposes. There is nothing special about tips. If we choose to tighten the rules to reduce under-reporting of cash tips, we had better be willing to tighten other tax rules, or tipped employees will protest that they are being singled out.

But if you're under-paying employees, more or less forcing them to take cash tips to make a living, then you create that tax-evasion environment. Just pay them fully and get rid of the tips and the tax hole is closed. And then you all pay taxes on your income and you get stuff, like social services, healthcare for all, etc.

 

[Tippytoes12]

We could all write for hours on the pros and cons of tipping. Personally, on a live aboard, my hubby and I have always tipped the recommended amount, and definitely not 10 to 20% of the trip cost. This is usually somewhere on the website or is advised by the cruise director. We would only tip less or not at all if we had horrible service on a liveaboard and this has never happened. We now also add in a bit extra because we are older and can afford it. If we get super good service, which happens a lot, we add in some more. Guides are often young and all young people was independence and this requires cash. But if the guiding was poor we would not hesitate to leave nothing.

We have heard stories of guides leaving very good jobs to move to establishments popular with American divers because of the perception that the size of the tips will be a lot larger.

 

[Lorenzoid]

Go ahead and tip 20% for poor service? Respectfully, heck no! To me this attitude is a big part of the overall problem. I very much disagree with prior posts about "stealing" -- no one has a right to a tip, it is a gratuity (a gift) for good service, and I have never agreed (even tacitly) to ensure these employees make a certain wage even if they provide poor service.

In the U.S., if an employee makes less than minimum wage, and employer is required to make up the difference between the tipped employee rate of pay and the regular minimum wage. So, contrary to what people usually say, everyone is already guaranteed at least the minimum wage. But generally almost all tipped employees who halfway try make a good bit more than minimum wage -- that's why the employees don't push for a fixed wage. And those that are so bad at customer service that they can't earn enough move on to other pursuits -- like the DMV!

So, it seems you disagree with the premise that the most basic purpose of a tip in the US system is to provide the customer's share of the value of the the tipped employee's work. You can disagree, but I say the IRS rules imply otherwise. It can only be called a "gratuity" with a wink. As I see it, a tip is not a reward on top of a worker's full compensation; it's an integral part of their compensation.

You're correct that the employer is supposed to make up the difference, and I probably should have stated that up front. What's missing from the calculus here is that the "regular minimum wage" is not necessarily the whole value of the tipped employee's work. But the employees's wages plus, say, 20% should in theory add up to what their work is worth. The employee's wages may be anywhere from the tipped minimum wage to way above the regular minimum wage, but the employer tries to set that wage so that when the customer's 20% is added, the total is what the employee should be compensated for their work. If it's too low, the employer risks the employee leaving for higher paying work.

 

[Rob9876]

So, it seems you disagree with the premise that the most basic purpose of a tip in the US system is to provide the customer's share of the value of the the tipped employee's work. You can disagree, but I say the IRS rules imply otherwise. It can only be called a "gratuity" with a wink. As I see it, a tip is not a reward on top of a worker's full compensation; it's an integral part of their compensation.

You're correct that the employer is supposed to make up the difference, and I probably should have stated that up front. What's missing from the calculus here is that the "regular minimum wage" is not necessarily the whole value of the tipped employee's work. But the employees's wages plus, say, 20% should in theory add up to what their work is worth. The employee's wages may be anywhere from the tipped minimum wage to way above the regular minimum wage, but the employer tries to set that wage so that when the customer's 20% is added, the total is what the employee should be compensated for their work. If it's too low, the employer risks the employee leaving for higher paying work.

Yes, I absolutely disagree with that premise, and your view of what the employee's work is worth is just your assumption starting from quite a different viewpoint than what I and many others have. And it absolutely is a gratuity since no customer is legally obligated to pay it, and the employer is in fact legally obligated to pay any shortfall from the regulator minimum wage. The fact that some customers may feel an obligation to pay is a misunderstanding on the customer's part (or guilt, or virtue signaling, etc.), rather than a real obligation.

 

[Eric Sedletzky]

So, it seems you disagree with the premise that the most basic purpose of a tip in the US system is to provide the customer's share of the value of the the tipped employee's work. You can disagree, but I say the IRS rules imply otherwise. It can only be called a "gratuity" with a wink. As I see it, a tip is not a reward on top of a worker's full compensation; it's an integral part of their compensation.

You're correct that the employer is supposed to make up the difference, and I probably should have stated that up front. What's missing from the calculus here is that the "regular minimum wage" is not necessarily the whole value of the tipped employee's work. But the employees's wages plus, say, 20% should in theory add up to what their work is worth. The employee's wages may be anywhere from the tipped minimum wage to way above the regular minimum wage, but the employer tries to set that wage so that when the customer's 20% is added, the total is what the employee should be compensated for their work. If it's too low, the employer risks the employee leaving for higher paying work.

It didn’t used to be part of the employees wages, but now it seems to have grown to be.
The IRS has nothing to with determining what is considered part of a wage or not, they just want their money. If you earned it one way or another they want their cut whether it’s on your W-2 or not.
What it should be is the wages go up 20% along with the food bill and you pay the price on the menu. If an employer loses employees because he/she is cheap and doesn’t want to pay them then let the free market take care of it. That would also insure the IRS get’s their money.
If the food bill goes up 20% what’s the difference, you’re paying that now, it’s just split up.
If the service is bad because the employee doesn’t care and is rude then go somewhere else next time.