The difference between cash tips and credit card tips is the timing of when the employee receives the actual money.
Cash tips are received as they come in and, once an employee reports the amount so it can be used to validate an employer’s tip credit, they can take the money home after their shift.
Credit card tips are typically paid out by employers in one of two ways:
- As cash that an employer pays out at the end of the employee’s shift; or
- As additional money an employer pays on the employee’s regular paycheck.
With tip credit reporting requirements, it might be best for employers to use option two so everything is tracked clearly and regularly.
What about credit card transaction fees?
Whether you pay your tipped employees’ credit card tips via cash or on their paychecks, many states allow you to deduct the credit card transaction fee from each tip given. The only time you can’t is if the deduction makes their combined wages come out to be less than the applicable minimum wage.
To see what the rules are in your state, check it’s Department of Labor website.Updated March 5, 2018
This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.