August 15, 2023, 4:53 pm | Read time: 4 minutes
Have you received exceptionally friendly service at your favorite restaurant? Was the conversation at the hairdresser particularly entertaining and your haircut looks great? Then feel free to leave a tip. Just round up the amount–done. But how does it work with card payments or smartphone payments? Many people are still unsure about this. We clarify: Here’s how to tip appropriately without cash.
In Germany, cashless payments only really took off during the pandemic. That’s why many people here often struggle with the new payment method. This also applies to cashless tipping. There are several things to consider, and TECHBOOK explains.
The method of payment for tips doesn’t matter at all from a tax perspective–at least for you as the tip giver. On the recipient’s side, it gets more complicated. The German tax system is known for its pitfalls.
Typically, you give tips in two ways:
- as cash or
- as a rounded-up amount via card or smartphone.
Tips are generally tax-free for you unless a tip is included as a fixed amount in the final price–which is rather uncommon in Germany. By the way, an appropriate tip here is 10 percent of the bill amount–for example, 5 euros on a 50-euro bill.
Tips and the Tax Office
As mentioned, the tax treatment of tips for the recipient is somewhat more complicated. Many cash register systems now have the ability to list tips as tax-free. In this case, the tip appears separately on the receipt with a tax rate of 0 percent.
However, not all restaurants or other service providers have this technical capability yet. Therefore, they cannot accept cashless tips. Our tip: Ask the service staff in advance if tips can be given cashlessly. If not, take out your wallet and give the gratuity for good service in cash. Otherwise, only the business owner benefits, not the nice person who made your evening enjoyable.
Tips are only tax-free for service staff. The owner must declare tips for tax purposes. So if the boss serves you particularly well and you give them a tip, they must report it in their tax return.
The same applies if all tips go into a communal tip jar. This is not uncommon in some restaurants and pubs. The collected money is usually distributed fairly on a monthly basis and then paid out in cash to the staff as additional salary. However, the tax office also takes its share, as collected tips must be taxed before distribution.
This also applies to a digital communal tip jar where cashless tips are recorded. This is a disadvantage for the staff, as they receive not the full amount but only a tax-reduced tip.
Read also: Important change at the Elster tax portal! Users must act
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Prefer to Give Tips in Cash?
In general, cashless payments themselves result in lower tips. This is because each card transaction incurs fees. The amount depends on the turnover. Therefore, in the earlier 50-euro example, the service staff doesn’t receive 5 euros, but definitely less–depending on the fees.
Delivery services, especially popular in big cities, where you can order groceries or food online, play a special role. They have long been criticized for not paying delivery personnel properly. This also applies to the distribution of tips. Here, you should keep cash tips ready if you’re unsure whether the money will actually reach the person.
Digital Solutions and Common Sense
There are now payment apps for service providers in the hospitality sector that discreetly and separately suggest a tip directly at the terminal. The payment process works as usual.
- You settle the actual bill amount via card or smartphone.
- After confirmation, a tip dialog appears.
- Here, you can choose a preset amount as a tip, enter a custom amount, or opt out of tipping.
- Only then is the payment process complete.
As you can see, despite the complexities of the German tax system, you can give tips tax-free even without cash. However, service staff only receive the full tip amount if you pay it in cash.
Or you can act like a pro. Since you now know that cashless payments may incur taxes or fees that reduce the tip, simply round up more generously. Instead of the usual 10 percent, thank them with 15 percent for the exceptionally good service and the enjoyable evening.