Should You Tip Your Server Based on the Pre-Tax Cost or The Total?

Tipping at restaurants should a fairly straightforward proposition. If you tip 15%-20%, you're in the right neighborhood of a proper tip. But are you tipping 20% of the total bill? Or should you tip on the bill before taxes are included? It's not uncommon for even restaurants to disagree on this. Some will suggest tip amounts based on the total bill, but most suggest tips based on the pre-tax total. That's the correct answer: you don't tip on the tax, because tax is not a service the restaurant provided. They gave you food and drinks, and the government gave you the tax (um, thanks?).

So if your pre-tax bill is $100 but $109 after tax, a 20% tip would be equal to $20. Yet CNBC is taking some heat for an article they put out, titled: "This Simple Tipping Trick Could Save You $400 A Year." And they probably deserve the criticism.

 

The CNBC story correctly covers pre-tax tipping, but it then goes on to suggest that you just tip less. In their world,18% is still in the 15-20% acceptable range. And look at all the money you'll save! Ok, now they're just being cheap.

It's important to remember that most restaurant waiters make very little money outside of tips. Take a look at the map below, from the U.S. Department of Labor. All of those states in blue allow restaurants to pay their servers a lousy $2.13/hour. The states in green do better, with a separate minimum wage for waiters. In Florida, that's still just $5.44. The states in purple require restaurants to pay their servers the state minimum wage.

Source: US Dept. of Labor

Bottom Line: We really shouldn't be getting too worked up about whether it's correct to tip on the pre-tax amount or not, because ultimately, you want to leave a fair tip based on the service you received. You want to remember that even in the states with the most generous minimum wage laws for restaurant workers, it's still a very hard job that doesn't pay enough. But it's nice to have a starting point, and I usually start at 20%, better if the service is exceptional. And yes, that's a pre-tax 20%.

Now... onto the next tipping minefield: Is it cheap to tip only 2% more when the restaurant included an 18% gratuity on the bill? We'll save that one for another day...

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