What Is a Non-Cash Gratuity?
Non-cash gratuities refer to any tips or tokens of appreciation that aren’t given as direct cash or added to a card transaction. These can take many forms – gift cards, event tickets, store merchandise, or even food and wine.
Although they are less common than standard cash or card tips, non-cash gratuities are legally considered taxable income and must be treated as such by the recipient.
How They Differ from Other Tips
The primary difference between a non-cash gratuity and a cash or credit card tip lies in how it is reported and managed.
Reporting to Employer: Cash and credit card tips are typically reported by the employee to their employer. Credit card tips are automatically tracked by the Point of Sale (POS) system, while cash tips are usually declared by the employee at the end of a shift. This information is then used for payroll, FICA tax withholdings, and record-keeping.
Non-Cash Gratuities: These tips do not flow through the POS system, cash drawer, or end-of-day reconciliation. Because they are not part of the business’s official records, they are often overlooked. However, the IRS still classifies them as income. The key distinction is that the responsibility for tracking and reporting the fair market value of these tips for tax purposes falls on the employee, not the employer.
Examples of non-cash gratuities include:
- A customer at a coffee shop gives a barista a $20 movie gift card.
- A guest at a restaurant leaves a bottle of champagne for their server as a thank-you.
- A long-time shopper offers a store associate a discount on an item from another store, or gives them a high-value piece of merchandise as a gift.
- A tourist gives a hotel concierge concert tickets as a gesture of gratitude for their help.
What Retailers Should Know
While non-cash gratuities do not pass through a business’s register or financial system, managers and business owners should be aware of them for several reasons:
Employee Responsibility: It is the employee’s legal responsibility to track the fair market value of all non-cash tips they receive and include them in their gross income on their personal tax returns. Employers have no reporting obligation to the IRS for non-cash tips, but they can support their staff by educating them on this rule.
Total Compensation: For employers, understanding that non-cash gratuities are a part of their staff’s total compensation package can be valuable when evaluating employee satisfaction and retention. In high-touch service models, these tips can be a significant addition to an employee’s earnings.
Company Policy: It may be important for a business to have a clear policy on accepting non-cash gifts, particularly to set expectations for employees and to clarify what is acceptable. This can help prevent misunderstandings and ensure all employees are treated fairly.
Team Culture and Customer Experience: The occurrence of non-cash gratuities can be a strong indicator of a positive team culture and an excellent customer experience. They often signify that customers are highly satisfied and feel a personal connection with the staff.
If non-cash tips are a common occurrence in your business, consider proactively educating your staff on how to correctly track and report them to avoid any potential tax issues for your employees. This small step can make a big difference in supporting your team.
