Should tips be taxed?
This bill hopes to amend the Internal Revenue Code 1986 to provide tax relief on income earned through tips. The bill proposes a new tax reduction of up to $25,000 annually on cash tips received by employees in occupations that typically receive tips. These tips must be reported to the employer for payroll tax purposes to qualify. This legislation also hopes to extend this policy to other spaces outside the food and beverage industry, including other services like hair care, nail care, and spa treatments. However, employees with compensation of over $160,000 in the prior tax year are ineligible for this deduction. Therefore, this bill has several benefits, including increased take-home tips for tipped workers and support for beauty service workers. However, this bill also has the potential to decrease revenue for federal programs like Medicare and Social Security, and increase tax evasion risks. Sponsor: Rep. Vernon Buchanan (Republican, Florida, District 16)
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Opponents say
• "They are so bold about it that they’re willing to even ignore past practices of the Senate and come up with some gimmick when it comes to math and say, ‘Oh, that’s not really happening." Source: Sen. Catherine Cortez Masto (Democrat, Nevada)
• "Proponents of exempting tipped income from federal and state taxes have called the proposal a ‘lifeline' that will 'deliver financial relief’ and 'put cash back in the pocket of a significant number of workers.’ In reality, exempting tips from taxable income will help very few workers. First, very few low-wage workers receive tips. If you look at those earning less than $25 per hour, which is just less than half of the workforce, only 5.1% are in traditionally tipped occupations. Second, many tipped workers already don’t pay federal income tax. According to researchers at the Brookings Institute, 37% of tipped workers “earn so little that they pay no federal income tax.” Similar trends often apply with state income taxes. For instance, families in Virginia earning less than $26,500 only pay 0.3% of their income toward income taxes." Source: Economic Policy Institute
• "The problem with tipped wages is not that they are taxed too heavily; it’s how little they tend to pay, and how much tipped workers have to rely on the kindness of strangers to make ends meet. In 2023, for example, the median annual wage for waiters was just below $32,000, according to the Bureau of Labor Statistics. In fact, as the Tax Policy Center put it, eliminating income taxes on tips would do little, if anything, for many tipped workers whose earnings are so low that they are already exempt from paying federal income taxes. Part of the reason that tipped workers are paid so poorly is that the federal government only guarantees them a subminimum wage of $2.13 per hour. If along with tips, a worker’s earnings are still below the federal minimum wage of $7.25 per hour, then employers have to make up the difference. (Many states and municipalities have wage requirements above the federal minimum, but those also often include carve-outs with lower hourly minimums for tipped workers.)" Source: Vox
Proponents say
• "Today is one of the most important steps toward ensuring the Republican majority fulfills its promise to the American people that we will secure our border, strengthen our national security, make President Trump’s tax cuts permanent, and reduce spending. With the passage of this budget resolution, we unlock the ability for the appropriate Senate committees to fully fund our border needs for four years, provide much-needed financial relief to our military at a time of great danger, make the 2017 tax cuts permanent to energize the economy, and do what has been promised for decades: go through every line item of the budget to cut wasteful and unnecessary spending – hopefully by the trillions. A ‘yes’ vote on this resolution makes all of this possible. We cannot expect any Democrat to help us seriously reduce spending or make the Trump tax cuts permanent. This responsibility falls upon the Republican majority and I am confident we will rise to the occasion." Source: Chairman of the Committee on the Budget and Rep. Lindsay Graham (Republican, Texas, District 2)
• "For far-too-long, Washington’s focus has been on how much of your paycheck politicians and unelected bureaucrats will take to fund their destructive agendas. Americans deserve to take home more of what they have earned, especially given the self-inflicted economic hardships created by the Biden administration. That is why Senator Cruz (R-TX) and I have introduced the 'No Tax on Tips Act.' Our bill allows taxpayers to claim a 100% above-the-line deduction at filing for tipped wages. Policymakers must put the needs and financial interests of hardworking Americans first." Source: Rep. Bryon Donalds (Republican, Florida, District 19)
• "We are not going to do something that advantages other people at the expense of helping the very people who need to be lifted out of poverty wages…Today in America, the average white family has a net worth of about $284,000. The average Black family has a networth of about $44,000,” he said. “I think (Harris) will also lay out a number of other key elements around the care economy and ensure there is support in place to lift up health care workers and child care workers. Those are the other elements that determine a strong economy." Source: Rep. Steven Horsford (Democrat, Nevada, District 4)
- Donalds Leads National Initiative To Eliminate Taxes On Tips (Press Release)
- Do Republicans have room in their budget to end taxes on tips? (The Daily Indy)
- “No tax on tips” will harm more workers than it helps (EPI)
- Trump and Harris agree on “no tax on tips.” They’re both wrong. (Vox)
- Rep. Vernon Buchanan’s Largest Donors (OpenSecrets)
