Q: What’s the difference between cash tips and credit card tips?

There are few differences between cash tips and credit card tips. If you’re trying to consider which is best for your business and employees, here are a couple of things to keep in mind:

  1. Keeping track of tips: Whether the tips are in cash or credit card, it’s important to keep track of the tips, as you and your employees still need to pay taxes on that income. Also, if you want to claim a tip credit, then you’ll want to keep track of the tip amounts. A credit card, since it’s electronic, helps document the tips more clearly.
  2. Timing: This can be important: When you or your employee actually receive their tips. If tipped in cash, employees can take that money home at the end of their shift. Credit card tips are typically paid through an employee’s regular paycheck.

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.

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.

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