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?

During the pandemic, the number of businesses accepting tips on credit cards increased as restaurants and other businesses stopped accepting cash to try and reduce the risk of spreading COVID-19. 

Since then, it’s become common practice to use credit cards or debit cards to tip at restaurants, nail salons, hair salons, and spas. Even taxi drivers usually accept credit card tips.

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. Request the bill. Ask your server for the bill. 
2. Review 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.
3. 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.). 
4. Calculate the total. If you’re writing the tip by hand, add the tip to the cost of your meal write the total on the receipt. If you’re using a payment machine, the machine will do the calculation for you.
5. Confirm payment. While your credit card is charged immediately for the base amount of your meal, your tip may not be charged until later. Check your credit card statement to ensure you were charged the right amount. If there is a discrepancy, call the restaurant to fix the situation. If they won’t help you, call your credit card company.  

How are credit card tips paid to servers?

If you tip with a credit card, it’s likely the server will not receive it until they get their next paycheck. How much of the tip they get depends on several factors, including whether the tips are pooled.

Pooling tips is common practice in some restaurants and requires all the servers to put their tips together before they are divided. Sometimes tips are divided among just the servers. Other times the tips are split between the front (servers, bartenders) and back (bussers, dishwashers) of the house. 

Servers might also lose a portion of their tip to credit card processing fees, as some employers require the employee to cover the fee. This can reduce the server’s tip by a certain percentage. For instance, if you leave a $10 tip and there is a 3% credit card processing fee, the employee will receive $9.70.

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 are not 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. 

Tips can be reduced by fees. Some employers deduct credit card processing fees before paying the employee the remaining tip amount, so the employee may not receive the full amount the customer intended to tip. 

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 is safer to carry a credit card than it is carrying cash. If your cash gets stolen, you 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 t 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.

Minimizes touching. It became important and widely adopted to tip by credit card during the pandemic, when touching cash became a way to potentially spread COVID-19.

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.