These days, the first thing that catches your eye when receiving a bill at a restaurant is not the food price, but the tip. In the past, it was common to calculate a 15% to 20% tip based on the food price excluding tax. However, recently, with the widespread use of tablets and card payment terminals, many restaurants present recommended tips of 18%, 20%, or 22% based on the total amount, including sales tax. This induces consumers to tip not only on the food price but also on the taxes paid to the government.
According to a 2023 Pew Research Center survey of 11,945 consumers, 72% of respondents said there are more places asking for tips than five years ago. Forty percent opposed the suggested tips on payment screens, while only 24% favored them. Seventy percent also expressed opposition to the practice of automatically charging tips or service fees.
What are the actual tip percentages? According to data released by payment platform Toast for the second quarter of 2026, the average tip percentage at domestic full-service restaurants was 19.1%, and at fast-casual restaurants, it was 15.8%. The average for customers who left tips on takeout orders was 13.8%. Since tips make up a significant portion of dining out expenses, the basis of calculation is just as important as the percentage.
The problem lies in the calculation basis rather than the tip percentage itself. Assuming the food price is $100 and the sales tax is 10% (10.25% in LA), a 20% tip based on the pre-tax amount is $20, but calculating it based on the $110 tax-inclusive amount makes it $22. Even with the same 20% tip, you are actually paying 22% of the food price. If a family of four spends $200, the difference increases to $4. While the amount is small at once, the burden accumulates with repeated dining. This extra money is not paid because the service was better; it is a cost generated simply because sales tax was included in the tip calculation.
While paying taxes is a mandatory obligation for consumers, there is no reason to tip on taxes. Sales tax is not compensation for the service provided by the restaurant, but a tax paid to the government. However, when establishments suggest tips based on post-tax amounts, consumers end up unknowingly paying tips on taxes as well.
In particular, consumers often face psychological pressure to select the recommended tips displayed on the screen while an employee is watching. Many times, payments are completed without having the time to check whether the recommended tip was calculated based on the pre-tax or post-tax amount. The original purpose of tippingβas a voluntary expression of gratitude for serviceβis becoming blurred.
Is it illegal to recommend tips based on tax-inclusive amounts? Tipping is fundamentally a voluntary amount decided by consumers, and there are no legal provisions requiring recommended tips to be calculated based on pre-tax amounts. However, if the calculation method of the recommended tip amount is unclear and displayed in a way that misleads consumers, it could potentially violate consumer protection laws. Yet, just because it is legally permissible does not mean it is a reasonable calculation method for consumers.
Recently, cases where taxes are applied to tips have also emerged. Some establishments mandatorily charge an 18% to 20% tip, to which sales tax applies. According to the California Department of Tax and Fee Administration (CDTFA), sales tax is not applied to tips voluntarily paid by customers, but mandatory tips or service charges imposed by restaurants are generally subject to sales tax. Ultimately, consumers are in a position where they must carefully check not only food prices but also various fees, mandatory tips, and sales taxes.
Digital technology has made calculation convenient, but at the same time, it has made it easy for consumers to pay for things they haven’t thoroughly checked. Restaurants should clearly state whether the recommended tip is based on pre-tax or post-tax amounts and allow consumers to make choices without pressure. Doing so might also reduce the awkward standoff between servers holding card terminals and consumers.
Tips should be an expression of gratitude for service, not another tax levied on top of taxes.
