‘No Tax on Tips’: A New Proposal from the GOP Budget Bill
New York, NY — President Donald Trump’s "no tax on tips" pledge has emerged as a significant element of the 2024 campaign and is now advancing through Congress. This proposal features prominently in a recent tax cuts package approved by House Republicans. In a noteworthy development, the Senate voted unanimously this week to support the measure, pushing it closer to legislation.
What the Proposal Entails
The "no tax on tips" provision seeks to establish a new tax deduction that would exempt federal income taxes on tips for workers in specified occupations, provided their total earnings remain under $160,000 in 2025. After the signing of the bill, the Trump administration plans to release a list of qualifying jobs within 90 days.
To qualify for the tip deduction, employees must report their tips to their employers. These tips will be documented on their W-2 forms, the end-of-year tax summaries. While the proposal eliminates federal income taxes on tips, payroll taxes, which fund Social Security and Medicare, will continue to apply, along with applicable state and local taxes. Set to expire in four years, the proposal could also contribute to an estimated $40 billion deficit increase by 2028, according to congressional budget analysts.
Reactions to Trump’s Campaign Promise
During a campaign event in Las Vegas, Trump made this tax pledge while targeting working-class voters facing rising costs. The catchphrase quickly gained traction as supporters began writing it on restaurant receipts and discussing it with barbers.
Although Trump did not provide many specifics at that time, he also hinted at eliminating taxes on overtime wages and Social Security payments. These ideas, alongside the tip deduction, appear in the GOP’s broader budget proposal.
Surprisingly, the Culinary Union, which represents service workers on the Las Vegas Strip, along with Nevada’s Democratic senators and Vice President Kamala Harris, has endorsed the essence of the "no tax on tips" proposal.
Potential Benefits and Critiques
Experts acknowledge that some service workers might see a tax benefit but warn of possible inequities inherent in the plan. Michael Lynn, a services marketing professor at Cornell University, highlighted that a significant portion of tipped workers earn too little to pay income taxes. Thus, they would not reap the benefits of the proposed deduction.
Lynn stated, “It’s overlooking non-tipped workers who need the help just as badly, and it’s giving the benefit predominantly to the least needy of the tipped workers.” Data from the Yale Budget Lab indicates that tipped workers have a median age of 31 and typically earn lower wages compared to non-tipped workers. The Urban-Brookings Tax Policy Center estimates that those who qualify for the tax cut could see an average reduction of about $1,800. ## Responses from Employers and Advocacy Groups
The National Restaurant Association supports the "No Tax on Tips" provision. Sean Kennedy, the association’s executive vice president for public affairs, stated, “Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and food service industry and could help restaurant operators recruit industry workforce.” He termed the measure “sensible legislation.”
Conversely, worker advocacy groups have raised concerns about the legislation. One Fair Wage, which includes nearly 300,000 service workers, argues that the measure may offer limited relief and benefits only a fraction of workers. Saru Jayaraman, the organization’s president, emphasized the need to raise the minimum wage instead, asserting that the current measure serves as a distraction from more pressing issues.
As discussions continue around the "no tax on tips" provision, both supporters and critics are voicing their opinions about its potential impact on the workers it intends to assist.
For ongoing coverage and analysis of this story and others, stay tuned to PBS News.
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