As tipping practices come under renewed scrutiny across North America, the U.S. Senate has voted to exempt thousands of workers from paying income tax on their tips — a move that comes just weeks after Quebec introduced new laws to rein in aggressive tipping prompts on payment terminals.
For Canadians, the moment offers a chance to reflect on how tipping culture has evolved, and how the lines between social courtesy, economic necessity and tax policy have increasingly blurred. From rising expectations to tip in fast food restaurants to pressure at checkout terminals, the shift in tipping norms is now a key part of how people budget, spend and earn in the service economy.
U.S. bill could eliminate income tax on up to $25K in tips
On May 20, the U.S. Senate unanimously passed the “No Tax on Tips Act,” a bipartisan bill that would exempt up to US$25,000 in annual tips from federal income taxes. The proposal, originally introduced by Republican Senator Ted Cruz and co-sponsored by Democrats Jacky Rosen and Catherine Cortez Masto, targets workers in traditionally tipped industries, from restaurant staff to hair stylists.
To qualify, workers would need to earn less than US$160,000 per year and report their tips to their employer, ensuring payroll taxes are still withheld. If passed by the U.S. House of Representatives, the bill could take effect in 2026.
Senator Cruz called tipping “a great American tradition” and argued that workers should be able to keep more of what they earn. “Tips belong to the workers who earn them — not the IRS,” he said during a press conference.
Democratic co-sponsors emphasized that the bill supports low- and middle-income workers, many of whom rely on tips to make ends meet. Still, some U.S. policy analysts cautioned that exempting tipped income could reduce eligibility for income-based benefits like Social Security or the Earned Income Tax Credit, since those programs are tied to reported income.
Quebec cracks down on tipping calculated after tax
While the U.S. moves to reduce the tax burden on tipped workers, Canada’s most recent tipping legislation has focused on the moment of transaction, not taxation.
As of May 7, 2025, Quebec has made it illegal for businesses to present tipping options based on the total after-tax amount. Under Bill 72, tipping prompts must now be calculated on the pre-tax subtotal, and businesses cannot pre-select tip amounts or use persuasive language at checkout.
The move comes amid growing public frustration over so-called "tip creep," the expectation to tip more, and in more places, than ever before. An Angus Reid poll from 2023 found that 83% of Canadians believe tipping culture has gotten out of hand, particularly with tip prompts now showing up at self-serve kiosks and fast food counters.
Under Quebec’s new rules, a 15% tip on a $100 meal is now required to be based on the pre-tax amount, resulting in a $15 tip rather than $17.25 if it were calculated on the after-tax total.
The legislation also empowers Quebec’s consumer protection office to enforce compliance, with potential fines of up to $100,000 for businesses that fail to follow the rules.
How tips are taxed and reported in Canada
In Canada, tips are considered taxable income. According to the Canada Revenue Agency (CRA), tips must be included on your tax return and may affect your entitlement to federal benefits and credits.
There are two categories of tips:
- Controlled tips: These are tips that are pooled, distributed or managed by the employer (such as tips added to a credit card bill and distributed later). Employers are required to include these in your T4 slip.
- Direct tips: These are tips received directly from customers (such as cash left on the table). Workers must track and report these themselves.
CRA requires workers to report both controlled and direct tips as part of their total income.
In Quebec, the rules go further. Employees working in specific service-sector jobs must declare all tips to their employer daily, and these tips are included in payroll calculations for vacation pay, pension contributions and other employment standards. The provincial tax agency, Revenu Québec, enforces compliance through mandatory declarations and employer reporting.
Failing to report tip income can lead to audits, reassessments, penalties or interest charges.
Tipping fatigue is real — and Canadians are feeling it
Canadians are tipping more often, and in more places, than ever before. A combination of post-pandemic service industry struggles, inflation and the proliferation of digital payment terminals has shifted tipping from a gesture of thanks to an expected part of almost every transaction.
According to Angus Reid, nearly half of Canadians now say they feel “pressured” to tip — especially when presented with preset options of 18%, 20% or even 25%. Many have also expressed confusion about whether tipping is mandatory, particularly in businesses that already charge service fees or where staff are paid above minimum wage.
These concerns are what spurred Quebec’s legislative action, and could prompt other provinces, and possibly our neighbours to the south, to follow suit.
For now, there is no Canada-wide policy on how tips should be presented or calculated at checkout. But as consumers grow more skeptical of rising tip expectations, there is increasing momentum for a clearer, more consistent approach.
What Canadian consumers and workers should know
Tipping might feel like a simple gesture, a few extra dollars to show appreciation, but whether you’re leaving one or earning one, there’s more at stake than you might think.
For consumers, it’s important to remember that tip suggestions on payment terminals are just that: suggestions. You’re not obligated to choose one of the preset options, and you can always enter your own amount, or none at all. These tipping prompts, often set at 18%, 20% or even 25%, can feel like pressure rather than a choice. And if you’re in Quebec, a new law now requires that tip suggestions be based on the pre-tax amount, not the total after taxes.
Also, keep an eye on your receipt. Some restaurants or services may already include a gratuity, especially for large groups. If that’s the case, you don’t need to tip twice, unless you truly want to.
For workers in tipped industries, the rules are clear: tips are taxable income. That means whether you get them in cash, on a card or through a pooled system at your workplace, they need to be reported. The Canada Revenue Agency expects all tip income to be included on your tax return, and in Quebec, that declaration must happen daily if you work in a regulated establishment like a bar or restaurant.
While it might be tempting to underreport, especially when tips are handed to you directly, doing so can affect more than just your taxes. Accurately reporting tips can help boost your eligibility for employment insurance, the Canada Pension Plan and other income-based benefits down the line. Tracking your tips carefully, and reporting them honestly, is one of the best ways to protect your financial future.
In the end, the rules around tipping, whether at the table, at the till or on your tax return, are changing quickly. As governments across North America take a closer look at how tips are earned, taxed and presented, both consumers and workers would be wise to pay closer attention too. Whether it’s resisting pressure from a payment screen or making sure tip income is accurately reported, being informed can help you make smarter choices, and keep more money where it belongs.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
