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Tipping and the Mcquatters Formula

University of Waterloo

Michael R. Veall

McMaster University

The Internal Revenue Service has been attempting to reduce tax evasion on tips paid in cash by imputing this income on the basis of credit card tip income. This note points out that the effective marginal tax rate on a credit card tip can as a result be very high, possibly in excess of 100%. This rate may affect behavior and could detract from the social acceptability of the imputation formula.

Public Finance Review, Vol. 29, No. 2, 99-107 (2001)
DOI: 10.1177/109114210102900201


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