- Businesses like restaurants and hotels often receive payments labeled as tips, gratuities, or service charges
- Optional payments labeled as tips are not taxable
- Mandatory payments labeled as tips are taxable and included in gross receipts
- Tips are considered optional if added by the customer on the bill or left separately
- Tips are not included in taxable receipts if the tip area on the check is left blank for voluntary customer input
- Example provided shows a guest check calculation with a sales tax of 8.25 percent for illustration
- Correct tax rates can be found on the California Department of Tax and Fee Administration website
- From January 1, 2015, tip amounts recorded as wages for IRS purposes are presumed optional and not taxable
- If records are not maintained, tips may be considered mandatory and taxable
- Misappropriated gratuities intended for employees are included in taxable gross receipts
Source: cdtfa.ca.gov
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
