The Fee on the Tip
A tip used to be something you could get arrested for. Now it's something the shop pays a card fee on, and since 2026 the tip screen also decides part of the worker's tax break.
Tess and Ray · 22 min · 13 Oct 2026
About this episode
In 1910s Iowa, a barber could be arrested for taking a quarter tip. Today nobody goes to jail for tipping. But when a client taps a tip on a card reader, the shop pays a percentage on that tip and on the sales tax too, money that was never the shop's. Tess and Ray follow that fee from the tap to the deposit. Along the way: Illinois's one-of-a-kind ban on fees on tips and tax, now stuck in federal court; the state rules on whether an owner can take the fee out of a worker's tips; and the 2026 IRS rules that turned the tip screen into a tax record.
They also give both sides of the argument, including bank and think-tank critics who say bans like this mostly help big retailers. Then they end on two things to look at on Monday: your processor statement and your own tip screen. This is general information, not legal or tax advice.
Hosted by Tess and Ray, from real reporting. Supported by Lynqly.
Sources
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