Service charge
A compulsory amount added by the business, such as a mandatory percentage for a large party. Federal guidance treats a compulsory service charge as something other than a tip.
Restaurant receipt guide
Service charge or tip? Start with what the receipt requires.
Reviewed for math and source accuracy August 12, 2026.
A service charge and a tip can appear close together on a restaurant receipt, but federal tax and labor guidance treats a compulsory charge differently from a voluntary amount chosen by the customer.
The plain-language difference
One is required. One is chosen.
For federal tax and wage purposes, the IRS and U.S. Department of Labor focus on whether the payment is compulsory and whether the customer controls the amount. A receipt label alone may not settle the classification.
Tip
An amount the customer chooses voluntarily and can control. Federal guidance looks at the facts and circumstances, including whether the customer can choose the amount.
Additional tip line
A receipt can show a required service charge and a separate place for a voluntary additional amount. Keep the two lines separate when checking the math.
Read before you add
Check five details on the receipt.
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Find the exact label
Look for service charge, auto-gratuity, gratuity included, large-party charge, hospitality charge, or another separately printed fee.
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Confirm whether it was added automatically
Check whether the amount was already included in the total before you received the receipt.
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Look for a separate tip line
A blank or suggested tip line can appear even when another charge is already on the bill. Read both labels before entering anything.
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Ask what the charge covers
If the wording is unclear, ask the restaurant what the charge is and whether any part goes to staff. Do not infer distribution from the label alone.
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Keep the amounts separate
When checking or splitting the receipt, record the required charge as a fee and any voluntary amount as a tip. That keeps the arithmetic visible.
What the sources actually say
Federal guidance focuses on control and compulsion.
The customer controls a tip
IRS guidance lists voluntary payment and the customer's unrestricted right to determine the amount among the factors associated with a tip.
A compulsory charge is different
The Department of Labor says a compulsory service charge is not considered a tip under the FLSA.
The facts matter
The IRS says whether a payment is a tip for federal tax purposes depends on the facts and circumstances, not only the name printed beside it.
When the group is splitting
Keep every charge visible in the share.
Enter the service charge or required fee separately from the tip. Fetti Up divides fees with the bill and shows each friend how items, tax, tip, and fees make up the share. You review the receipt and keep the final say.
Primary references
Read the federal guidance directly.
These sources cover federal tax and labor treatment. For a question about a specific charge, consult the restaurant and the rules that apply where the transaction occurred.
IRS: Tip recordkeeping and reporting
The IRS explains how voluntary tips and mandatory service charges are treated differently for federal tax purposes. The IRS notes that facts and circumstances matter, not only the printed label.
Read the IRS overviewIRS: Revenue Ruling 2012-18
The ruling lists factors used to distinguish a tip from a service charge for federal employment tax purposes.
Read Revenue Ruling 2012-18U.S. Department of Labor: Fact Sheet #15
The Wage and Hour Division explains tipped-employee rules and how the FLSA treats a compulsory service charge.
Read Fact Sheet #15Service charge and tip questions.
Is an automatic gratuity a tip?
Federal IRS and Department of Labor guidance generally treats a compulsory amount set by the business as a service charge rather than a tip. Facts, circumstances, and other applicable rules can matter.
Does a service charge go to the server?
Do not assume that from the receipt label. The restaurant can explain its policy. Federal guidance says a distributed compulsory service charge is not a tip under the FLSA, even when the business pays some of it to employees.
Should I add a tip when a service charge is already included?
That choice belongs to you. This guide helps you identify the printed amounts and understand the federal terminology, but it does not recommend whether or how much to add.
How should I enter both amounts in a bill splitter?
Keep the required service charge in a fee field and a voluntary amount in the tip field. Separate entries make the split easier for everyone to review.
Ready for the next bill?
Keep the charge visible. Keep the split clear.
Fetti Up helps you review the receipt, separate fees from tip, and show each friend exactly how their share adds up.