What is tip tolerance?
Tip tolerance allows cardholders to use gift cards for transactions that include tips, such as restaurant meals, or for transactions where the cardholder may want to leave a small amount in addition to the purchase price. This happens when cardholders use gift cards at businesses where gratuities are expected, such as a restaurant or a salon. The amount charged varies based on the final tip, but it is usually around 20%.
Many merchants use processing systems that will pre-authorize an extra 20 percent above the amount of the bill. If there's enough cash to pay the bill plus 20 percent, the transaction proceeds. Once the final amount is figured out – maybe you only wanted to tip 15 percent, or maybe you decided to tip in cash – that exact amount of money is deducted from the card. If the preauthorized 20 percent tip wasn't used, the money would eventually go back on the card when the transaction clears.
For example, if the cost of an item is $10 and the tip tolerance is $2, then you will receive a charge of $12. Bear in mind that if you decided not to tip, you will see two transactions on your card. One for $12, and one for $10. The first one is a pre-authorization (when the merchant checks if your card is actually good for that amount, not an actual charge) and the latter is the actual charge. As such, you may rest assured that you're not being charged $22.
You can have a look at this article on pre-authorization for more info as these usually go hand in hand.
To avoid any potential awkward situations, it's best that you know your balance beforehand and consult an employee/manager of the store before presenting the card for an actual payment.
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