How Does Tipping Work on a Credit Card?

After you enjoy a meal at a restaurant, get your hair done at the salon, or take a ride in a taxi, it’s common practice to leave a tip. Tipping is the act of giving money to someone who has provided a service on top of the standard charge. It’s a way of acknowledging their work and showing your appreciation. You can choose to leave a tip in cash or tip with your credit card.

Where can you tip with a credit card?

It’s been common practice to use credit cards or debit cards to leave a tip at certain merchants or for specific services, such as restaurants or riding in a taxi. Now, you may find places like nail or hair salons, spas, coffee shops, and more service-oriented businesses accept using a credit card to pay and leave a tip.

How does a tip get charged to your credit card?

If you want to tip your server using your credit card, here’s how you do it.

1. Review your bill. When you receive your bill, if everything looks good, you can give the server your credit card; in some cases you may have the option to swipe, tap, or insert your credit card on a mobile payment machine.
2. Decide how much to tip. This may require you to do a quick mental calculation. Then you can write the tip amount on the line that says “tip” or “gratuity.” Some businesses have mobile payment machines that do the math for you based on your selected tip percentage (e.g. 20%, 22%, etc.). 
3. Calculate the total. If you’re writing the tip by hand, add the tip to the cost and write the total on the receipt. If you’re using a payment machine, the machine will do the calculation for you.
4. Confirm payment. While your credit card is charged immediately for the base amount, your tip may not be charged until later. It’s a good idea to keep the customer copy of your receipt and to fill it out the same as the receipt you give back to the merchant. Check your credit card statement to ensure you were charged the right amount. If there’s a discrepancy, call the merchant to fix the situation. If they won’t help you, call your credit card company. 

How are credit card tips paid to servers?

How servers are paid for their tips can vary based on the company and state law. For example, according to the California Department of Industrial Relations, California law states that “gratuities are the sole property of the employee or employees to whom they are given,” meaning they’re not subject to business expenses or service fees, like a credit card processing fee. If the tips are pooled, then the servers share tips with other employees like bussers or dishwashers, but not owners, managers, or other supervisors.

If you tip with a credit card, the server may not receive it until their “next regular payday following the date the patron authorized the credit card payment,” according to California state law. Check local laws where you are to determine how and when servers are paid credit card tips.

When you’re deciding how much to tip, consider that some restaurants pay “tipped employees” less than minimum wage. According to the U.S. Department of Labor, a tipped employee is anyone who works in a job where they regularly receive tips of more than $30 per month. Employers are only required to pay their tipped employees $2.13 per hour in direct wages, as long as this amount combined with their tips exceeds the federal minimum wage.

Should You Tip With a Credit Card or With Cash?

When trying to decide if you should tip with a credit card or with cash, there are pros and cons on both sides to consider.   

Drawbacks to putting a tip on a credit card

• Delayed credit card tip processing. When you tip with your credit card it can take a day or two to process. The employee may have to wait until their next paycheck to receive their tips. Some employees might prefer to have a cash tip, so they have immediate access to the money.
• Credit card tips may not be accepted. There are still some businesses and services that aren’t set up to accept credit card tips, and other services (like a porter delivering your luggage to your hotel room or a valet parking your car) that don’t involve a standard service transaction on your credit card and so can’t include a credit card tip. Sometimes, it’s necessary to have cash on hand to tip accordingly.

Advantages of tipping with a credit card

• Convenience. When you add the tip to a purchase that you’ve already made by tapping your credit card, you don’t have to bother going to the bank or ATM to take out cash.
• Safety. It’s safer to carry a credit card than it is carrying cash. If your cash gets stolen, you’re unlikely to get it back. But if your credit card is stolen, you can immediately cancel your card. Even if someone steals your card and racks up hundreds or thousands of dollars in charges before you notice, you’re never held responsible for unauthorized charges on your Discover Card.¹ For any credit card, you’re covered by the Fair Credit Billing Act (FCBA), which says that you’re only on the hook to pay $50 on any unauthorized charges, according to the Federal Trade Commission.
• Ability to earn rewards. You can’t earn rewards when you tip with cash, but you can earn cash back or Miles when you use your rewards credit card.

Tipping by credit card or cash, the choice is yours

For many, the convenience, safety, and ability to earn rewards associated with using a credit card outweigh the advantages of carrying and tipping with cash. Whatever way you decide to tip, the tipped employee will appreciate any form of tipping more than no tip at all.