Tip from Net Price

Imagine you're leaving a tip in a bar or a restaurant; you typically assume a percentage, like 10% of the total price. But not all of the total price goes to the restaurant – part of it is paid to the government as tax.

If you want to tip your waiter based on the net price instead (as is customary in some countries), you've come to the right place.

If you want to tip based on the gross price (in other words, the price that includes the tax), use our regular tip calculator.

So what's the difference between the net price and the gross price? To put it simply, the sales tax or VAT.

gross price = net price + tax

But it's not the end. The tax is never a fixed amount of money - it is also expressed as a percentage (for instance, 23%). So,

gross price = net price × (1 + (tax percentage / 100))

Here is how to use the tip from net price calculator

1. Look at the bill the find out the gross price. Let's assume it's $50.

2. Check, either on the receipt or online, what the tax rate is – let's say it's 23%.

3. Decide on the tip you want to leave. Let's say you feel generous today and want to leave a 15% tip on the net price.

4. Calculate the net price according to the formula above. In our case, it is:

   net price = gross price / (1 + tax percentage) = $50 / (1 + 0.23) = $40.65.

5. Find the tip from the net price:

   15% × $40.65 = $6.10.

6. Add the tip to the gross price to find out how much you need to pay altogether. In this case,

   $50 + $6.10 = $56.10.

Tipping from net price is slightly different than tipping from gross price. As the name suggests, when you tip from the net price, you consider the amount that effectively ends up in the hands of the owner of the place you're paying.

The gross price, on the other hand, also considers taxation and additional fees that are not a direct profit. Tipping from the net price allows you to exclude the taxation from the amount you want to leave to the server, making tipping fairer for you.

To calculate the tip from the net price, be sure to know the following:

• Gross price;
• Tax; and
• The tip you wish to give, expressed as a percentage.

Then follow some simple steps:

1. Calculate the net price with the following formula:

   net price = gross price/(1 + tax)

2. Calculate the tip amount in the desired currency by multiplying the net price by the tip in percentage:

   tip amount = net price × %tip.

That's it!

A 10% tip on a $100 gross price with 20% of taxation is $8.33. To calculate this result, follow these steps:

1. Calculate the net price with the formula:

   net = gross/(1 + tax) = $100/(1 + 0.2) = $83.33.

2. Calculate the tip amount from the net price with the following formula:

   tip amount = net × tip = $83.33 × 10% = $83.33 × 0.1 = $8.33.

3. This brings the total price (gross plus tip) to $108.33.

Tipping from the net price, that is, considering the effect of taxation on the gross price, allows you to tip according to the effective amount of money that the owner will earn. While there is no "better" way to do it, if you feel generous or the service was particularly good, calculate your tip from the gross price.