Is gratuity taxable? If a meal is 19.00 with 10% tax and 20% gratuity, is the final cost 24.70 or 25.08?

Question

This is a debate in my office, I would like others input. Does it vary from state to state? or place to place?

Answer 1

In most states, that I have visited or computed sales tax for (around a dozen of them), tips are NOT subject to sales tax.

They are, however, subject to employer's taxes AND employee income taxes. But that has nothing to do with your tab at a restaurant.

Tips should be figured on total bill MINUS bar tab.

Sales tax is calculated on food/drinks NOT tips.

If anyone else can show me a link to a state sales code site that proves this is different in a state, I would greatly appreciate it.

In answer to your question specifically, in all the states I know of the total should be $24.70

Answer 2

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RE:
Is gratuity taxable? If a meal is 19.00 with 10% tax and 20% gratuity, is the final cost 24.70 or 25.08?
This is a debate in my office, I would like others input. Does it vary from state to state? or place to place?

Answer 3

Any gratuitiy is NEVER subject to sales or meals taxes. You base the gratuity on the cost of the meal BEFORE tax. Therefore a $19.00 meal with 20% gratuity ($3.80) plus 10% tax ($1.90) would add up to $24.70

Answer 4

The gratuity isn't taxable you only pay taxes on the main cost of the meal which is 19.00
So the whole cost will be 24.7

Answer 5

5

Answer 6

Your tip is NOT taxable to you at the time of purchase.

In fact, your tip should be based on the cost of the meal only.

Answer 7

You don't pay sales tax on the tip. But the server is required to report it and pay income tax on it.