Priority Fee (Tip)
The priority fee, also called the tip, is an optional additional payment per unit of gas that a transaction sender includes above the base fee in an Ethereum transaction, paid directly to the block validator as an incentive to prioritize and include the transaction ahead of others offering only the base fee.
After EIP-1559, Ethereum transaction costs have two distinct components: the base fee (determined by the protocol, burned) and the priority fee or tip (set by the sender, paid to the validator). While the base fee defines the minimum cost floor for inclusion, the priority fee is the competitive lever that determines ordering and speed within a block.
In low-congestion environments where block space is abundant, even a priority fee of 1 gwei is sufficient to ensure prompt inclusion — validators will include any valid transaction that meets the base fee requirement, and a nominal tip is adequate. During high-congestion periods, when many transactions compete for limited block space, higher tips induce validators to include a transaction over lower-tipping alternatives.
Block builders (in post-Merge Ethereum's PBS architecture) sort pending transactions by their effective priority fee per gas unit and fill blocks from highest to lowest until the gas limit is reached. Understanding this ordering mechanism is important for users who need guaranteed next-block inclusion — such as arbitrageurs, liquidators, and NFT minters racing to complete time-sensitive on-chain actions.
The priority fee interacts with MEV (maximal extractable value) infrastructure in important ways. MEV searchers who want specific transactions placed at precise positions in a block — for example, immediately before or after a large DEX trade they plan to arbitrage — often pay extremely high priority fees or negotiate directly with block builders through private order flow channels, bypassing the public mempool. This is the ecosystem that spawned services like Flashbots, MEV Boost, and private relays.
For ordinary users, the key practical consideration is setting an appropriate max fee: a maximum fee per gas that equals the current base fee plus a priority fee buffer provides the desired inclusion speed while protecting against overpaying during a sudden fee spike. The max fee is a ceiling — if the base fee at inclusion time is lower than expected, the difference between the total max fee and the actual (base fee plus tip) is refunded.
For U.S. tax purposes, gas fees paid on Ethereum transactions — including the base fee component (which is burned) and the priority fee — are generally treated as part of the cost basis of the transaction, not as deductible expenses, under current IRS guidance on digital asset taxation.