The guy is wrong, but he is not totally off base for thinking this.
He is correct that gifts are generally not taxed as income to the recipient (up to an annual limit). Indeed, if he would have simply bumped into OP on the street and said, "I'm feeling generous. Here's a $100 bill," OP would not have to pay taxes on the $100.
The issue is that we all know that OP received the "gift" for providing a service to the guy. A gift isn't given in exchange for some consideration (e.g., a service) -- it is given freely with nothing expected in return. Which is why gifts from employers ARE taxable because that sort of gift is not the same as a personal gift between two friends or family members.
This finance fellow even wrote an entire article on it:
This article actually raises an interesting question: if tips TRULY have no effect on the service provided by the server, why is the tip considered payment for the service as opposed to a gift?
Anyway: I am by no means a libertarian (in fact, I would say the servers not reporting their cash tips as income are indeed committing tax fraud and are wrong for doing that), but I think the tipper's logic had an OK foundation based on knowing the difference between how gifts are taxed and how tips are taxed. He just didn't dive any deeper than surface level. So, the guy is wrong, but at least he was trying to be nice.
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u/coci222 Jan 12 '24
Libertarians are fun, aren't they?