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FACT BRIEF

Does a social media post show a legal way around income taxes on tips?

By Ed Payne
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NO

The IRS says "all cash and non-cash tips" are income and are subject to federal income taxes. States with income taxes may also tax gratuities. Declaring the tip a "gift" doesn't change that.

A social media post encourages customers to leave tips in cash or to declare tips on credit card charges to be gifts "so the government cannot tax it."

But the IRS is clear on its website that tips — cash or included on a credit card — are considered income and therefore taxable.

As for declaring tips to be gifts, the IRS is clear about that, too, defining a gift as, "Any transfer to an individual ... where full consideration ... is not received in return."

Because tips are in response to a product or service being provided, they cannot qualify as a gift no matter what the customer calls it.

See a full discussion of this at Lead Stories
This fact brief is responsive to conversations such as this one.
Sources
Internal Revenue Service Tip Recordkeeping and Reporting
Internal Revenue Service Frequently Asked Questions on Gift Taxes
ABOUT THE CONTRIBUTOR
Lead Stories
Lead Stories is a fact checking and debunking website at the intersection of big data and journalism that launched in 2015. It scouts for trending stories, images, videos and posts that contain false information in order to fact check them as quickly as possible. It actively monitors the fake-news ecosystem and doesn’t wait for reader tips or reports before getting started on a story.
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About fact briefs published on Gigafact
Fact briefs are short, credibly sourced summaries that offer “yes/no” answers in response to claims found online. They rely on publicly available, often primary source data and documents. Fact briefs are created by contributors to Gigafact —a nonprofit project looking to expand participation in fact-checking and protect the democratic process. See all fact briefs here.