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Let’s play a game. What’s wrong with this card?

To digress for a moment, that shade of yellow. Looks like the way an acid bath must feel.

In all seriousness, because the motive behind handing this so-dubbed “business card” along with a tip is null because of the card’s own wording. 

“But what’s wrong with the card?” you may wonder. “Reads alright to me. Says ‘tax-free’ right there.” 

To that ponderer: your heart is in the right place. 

To any moderately caring person, the main concern when doling out a tip is that the person you’re doling to gets every cent. 

Even still, there’s a good reason why this piece of cardboard won’t get the best of the government.

Waiter Joey wants to know “How is everyone doin’?”

Are tips taxable?

You hand off this card along with a few crisp bills, thinking you’ve found a loophole and the secret to endless favor in the service industry… even as its wording obligates your recipient to file those bills with their income tax.

Empathetic (and/or anti-establishment) customers around the world carry a similar card, or deliver a comparable verbal message, when they pay gratuity to a merchant, server at a restaurant, or delivery person.

The logic being that it’s better to characterize a tip as a gift than call it what it is, because “tips” are taxable while “gifts” are not. 

It’s a nice idea. Does it work in practice?

In short, no.

Rock the court, not the law

Why you can’t give “gifts” to service people

Let’s take an example. 

Say you’re feeling exorbitantly generous—even to an Amy Schumer-esque degree—and leave the young waitress who brought your ribeye a $100 tip.

Clearly, the amount you left her has no rational relationship to the service she rendered. Sure, she smiled at all the appropriate moments and carried your dish over without once dropping it, but, hey, construction workers get paid just over a tenth of that amount per hour to operate deadly machinery.

Clowns get pelted with pies and still have to make do in oversized clothing because they can’t afford something with that crucial bit of tailoring.

Back to the main point, though: in the waitress case, your gratuity couldn’t have been true, non-taxable gratuity. 

You know it, I know it, and the government certainly knows. 

No matter how nice a girl, and how genuine she seemed and that, because she seemed so wonderful, you were really giving the cash to her and not her as a server, $100 is excessive to an inexplicable degree. No prior relationship? That’s taxable.

The IRS has been using text speak longer than you

Internal Revenue Service (IRS) BS

The IRS guidelines are clear: compensation for services is taxable. Because you and the waitress met at her place of work, while she was providing service, the gratuity given is considered a response to her service. Thus, is a taxable source of income. 

Now that that’s all spelled out, let’s take a look at the tipping “business card” again. 

Mainly, we’re focusing on the first bit: “In appreciation of your effort…” 

The sentence actually works to define the money as a tip by tying it to the service provided. It barely muddies the definition waters, let alone qualifies as an irrefutable Get Rich Quick card for your waiter.

Let’s ignore the fact that the card is a shameless, bare-faced attempt to cheat the system simply by saying, in so many words, “I am going to define the system in my own terms.”

The card’s drafter most likely intended that the optimal word there, “effort,” would emphasize the tip’s ambiguity; it sidesteps words that connote a job had been performed. Moreover, despite the repeated use of the word “gift”, it seems to play less on the cash as a gift than as an act of charity, another type of non-taxable income. A donation as thanks for their daily effort, regardless if you benefit from that effort or not.

As of today, the Treasury still specifies that “wages, tips and other compensation” are still taxable if they were “received for the performance of personal services.” Would you have given a random waitress $100? One that hadn’t performed any service for you?

Take into account the issue we already addressed—that the card’s argument is riddled with a totally unsupported “taxation is theft” slant that suggests a clear intent to skirt taxes—and the card isn’t worth the cardboard it’s printed on.

Like Neo dodging laser beams. But you’re not Neo.

Is there any way I get around the IRS guidelines?

You can try one Redditor’s correction of the libertarian Tax Me Not card, that suggests a rewording along the lines of “I feel like we’re becoming fast friends. Here’s some money, because you’re cool. It’s not a tip; your service was lousy!”

Otherwise, unless you’re Oprah, giving away cars, cash, or both, it probably isn’t a part of your daily routine to reward random people valuable goods; people so random that you would have given them gifts even if you had sat around the house and filter-fed all day.

Now, if you want to start a national collective that would have every diner gift a random server a nice $20 bill, “just because I like their attitude,” we’re not stopping you. If you can pull it off, in fact, we’ll join the club.

But any other evasive shenanigans that well-meaning customers think up should be left circling the drain with the rest of the dirty dishes. 

In the interest of your service person, don’t go into Sneak Mode

In conclusion

At the end of the day, the key question around any of these novel IRS evasion tactics is “Would an auditor agree with your logic?” If the answer is No, then chances are, don’t claim it (or pressure your server to claim it) as such.

Don’t be like this other Redditor, who claims that he asks his server’s name, tells them his, asks when the server’s birthday was, tells them how embarrassed he is to have missed it, but hopes they’ll accept a belated “gift.” (Respect to the near-mafia efforts at subterfuge, but, really?)

On a more logical note, giving your server a loophole to claim more tips off the books can inadvertently pose the consequences of under-claiming tips: a financial disadvantage when applying for anything that requires people to prove their income, like a loan or housing rental.

For the time being, concerned tippers should consider how much of their tip (post-taxes and post-cut to the boss and/or coworkers) will land in the pocket of the underpaid, overworked service person. Since the service industry isn’t budging, maybe it’s your autopilot 15% gratuity that should be the bigger person.

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