Applying touch-up paint above the level of the paint and then sanding down is why I advocate building up the chip from the inside up in small layers. By slowly building the chip-site back up close to the surface height you don't have to sand and cause great trauma to that area of the paint.
If you apply a small bit of base-coat and more clearcoat it tends to match the rest of the surface better. I wouldn't tape unless you are into making a bigger production out of it than it really has to be. Even if you don't use a syringe to inject the paint you can use a sharp toothpick to dispense the factory touch-up paint into the chip MUCH more precisely than that big ole brush that comes with it. This method yields a virtually undetectable patch on MB "Brilliant Silver".
If you have already or accidentally slopped more paint on the site than you intended and you intend to wet-sand there are some other ways. You can try using 1500-2000 grit glued to a small wooden block about the size of a pool-cue chalk.(1 inch cube) Its more labor intensive but paint IS permanent. The perfectly flat surface lets you only touch the raised area if you are VERY careful. Once finished wet-sanding you will want to use #9 Meguiar's Swirl, then Meguiar's polish, then wax. As always you clean the area being touched of all dirt, grime, wax, etc.

Just my thoughts and experience...Lee