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Tip of the Iceberg: How Much Do Tips Bunch at Reporting Thresholds?

Author

Listed:
  • Emek Basker
  • Lucia Foster
  • Martha Stinson

Abstract

We study the importance of bunching in the context of tip-income reporting by workers at full-service, single-unit restaurants in the United States. Using tax reports at both the individual and the employer levels, we show that reported tip income varies with minimum-wage laws that provide an incentive for tipped workers to report some, but not necessarily all, of their tips. As a result, reported tips bunch at the minimum required threshold. We quantify missing tips due to bunching at nearly $63 million per year in 2018 dollars, on average over the period 2005-2018. Bunching is stronger for jobs at small employers and in the earlier part of the time series and declined monotonically from 2010 to 2018. Using restaurant-level revenue data, we also estimate the total value of unreported tips assuming an average tip rate of 12%. We find that tips are missing throughout the distribution. All told, missing tips exceed $4 billion per year, implying that bunching explains only 1.5% of all missing tips.

Suggested Citation

  • Emek Basker & Lucia Foster & Martha Stinson, 2026. "Tip of the Iceberg: How Much Do Tips Bunch at Reporting Thresholds?," Working Papers 26-40, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:26-40
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    References listed on IDEAS

    as
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    3. Emek Basker & Muhammad Taimur Khan, 2016. "Does the Minimum Wage Bite into Fast-Food Prices?," Journal of Labor Research, Springer, vol. 37(2), pages 129-148, June.
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    Keywords

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    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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