How this calculator works
Sales tax is charged as a percentage of the net price, so the gross price is the net price multiplied by one plus the tax rate. Dividing the gross price by the same factor recovers the net price. Tipping on the net price excludes the tax from the tip base; tipping on the gross price includes it. The tax itself is the difference between the two, and the extra tip from using the gross base is that tax multiplied by the tip rate.
Formula
gross price = net price x (1 + tax rate). tax = gross price - net price. tip = chosen base x tip rate. total = gross price + tip. tip on gross = gross price x tip rate. difference = tax x tip rate.
Worked example
A net price of $100 with 13 percent tax has a gross price of $113 and $13 of tax. An 18 percent tip on the net price is $18.00, for a total of $131.00. The same 18 percent tip on the gross price is $20.34, which is $2.34 more, exactly 18 percent of the $13 tax.
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Frequently asked questions
Why bother tipping on the net price?
Tax is collected by the government, not earned by the server. Tipping on the net price keeps the tip proportional to the service and avoids paying a tip on the tax. The difference is small on a normal meal but grows on a large bill.
What if the bill already includes the tax?
The gross price is the amount on the bill. Enter the tax rate that applies where you ate, and the page will back out the net price. If the tax is already included in a displayed service charge, treat that charge as part of the gross price and use the tax portion stated on the receipt.
Does this work for a value-added tax?
Yes. A VAT or GST is also a percentage of the net price, so the same gross-up formula applies. Use the rate printed on the receipt rather than an assumed national rate.
How do I tip on a discounted bill?
Enter the amount actually charged as the net price, or the pre-discount amount if you prefer to tip on the original value. The calculator does not know about discounts, so the number you enter is the one it uses.