But “it’s much harder to explain to people, hey, with that income, you’re not subject to tax anyway,” she said. A top item in Republicans’ reconciliation bill is expected to be an extension of Trump’s 2017 cuts from his first term that are set to expire at the end of the year, in addition to other tax cuts Trump has floated. Exempting any more income from taxation is not going to help those individuals,” Crandall-Hollick said. Trump raised the idea to end taxing tips at a June campaign rally in Las Vegas, home to the Culinary Workers’ Union. Confronted with the opaque American tax system, it’s catchy to say your tipped income won’t get taxed, said Margot Crandall-Hollick, a researcher at the Urban-Brookings Tax Policy Center. “How about just no tax?” Trump said Saturday, responding to a woman who shouted in support of the idea from the crowd.

According to the Fair Labor and Standards Act, a tipped worker is defined as one who “customarily and regularly” receives $30 or more in tips monthly, a wide definition that encompasses millions of Americans. Yale University’s Budget Lab estimates that in 2023, there were 4 million workers in tipped jobs, comprising about 2.5 percent of the U.S. workforce. The practice of tipping dates back to Europe in the 17th century, where it was initially a voluntary gift given to servants or workers.

Killing taxes on tips sounds good, but experts say it doesn’t solve the real problem

In any of these scenarios, Crandall-Hollick said, lower-income people are unlikely to benefit. She gave an example of a tipped employee making the subminimum wage of $2.13 an hour, working 40 hours a week for 50 weeks a year. But the standard deduction is $14,600, and since taxable income can’t be negative, this employee is already not paying taxes.

  • Under this second approach, some workers might see their gross income drop enough that they would no longer qualify for the EITC, though Crandall-Hollick also said some of the proposed legislation has language that could avoid that effect.
  • However, these workers would then get smaller Social Security payments after they retire.
  • But virtually all tipped workers would get some tax relief if Trump also gets rid of payroll taxes on tips, the Tax Policy Center found.
  • More detailed was his recounting of how the idea came to him in the first place.
  • Trump and House Speaker Johnson want to try to pass his reconciliation package through one bill, but Senate Republicans have talked about multiple pieces of legislation.
  • Not long after Trump first raised the idea, a group of senators led by Sen. Ted Cruz, R-Texas, introduced legislation to eliminate federal income taxes on tips.

Costly campaign promise

  • Calling tips gifts would complicate that system, Crandall-Hollick said.
  • Economists like Gleckman, Crandall-Hollick and Shierholz also worry that if the conversation becomes focused on taxless tips, efforts to raise both tipped and untipped minimum wages may fall by the wayside.
  • According to the Fair Labor and Standards Act, a tipped worker is defined as one who “customarily and regularly” receives $30 or more in tips monthly, a wide definition that encompasses millions of Americans.
  • People might tip less if they assume workers would keep a greater share of the tips, Gleckman wrote.
  • In many cases, the tipping amount has become standardized, with 15% often considered a typical tip in places like restaurants.
  • This calculator makes tipping quick and easy, ensuring you always leave the right amount based on a standard 15% tip rate.
  • In any of these scenarios, Crandall-Hollick said, lower-income people are unlikely to benefit.

Republicans have disagreed on the tactical approach to pass Trump’s agenda through reconciliation. Trump and House Speaker Johnson want to try to pass his reconciliation package through one bill, but Senate Republicans have talked about multiple pieces of legislation. Some hardline conservative Republicans have said they want steep tax cuts in exchange for their support to raise the debt ceiling, which will need to happen for the U.S. to continue to borrow. Meanwhile, the Republican-controlled Congress must act before March 14 to fund the government or risk a shutdown.

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Tipping is a widely practiced custom, especially in the restaurant industry, to show appreciation for good service. A 15% tip is a standard tip 15 percent amount often given in many countries, though it may vary depending on local customs or personal preference. This calculator simplifies the process of determining a 15% tip and helps you easily figure out the total bill after adding the tip.

How would this proposal actually work?

Republicans, who hold a majority in the Senate, can, as a result, pass a reconciliation package by a party-line vote, making it easier to win approval. Economists like Gleckman, Crandall-Hollick and Shierholz also worry that if the conversation becomes focused on taxless tips, efforts to raise both tipped and untipped minimum wages may fall by the wayside. As the election kicks into high gear, both former President Donald Trump and Vice President Kamala Harris have made proposals on the campaign trail to end taxes on tips. The National Restaurant Association, whose members employ many tipped workers, supports Cruz’s bill.

About 4 million people worked in tipped occupations in 2023, or about 2.5% of all employment, according to the Budget Lab at Yale University, a policy research center. “Taking on both issues is critical to ensuring one job is enough for workers to support their families,” Secretary-Treasurer Ted Pappageorge said in a statement. In 2006, the most recent year for which data exists, the IRS estimates employees didn’t report about $23 billion in tips, or about half of the $44 billion in estimated tip income. “I think there’s a lot of attention on taxes making people whole, taxes are going to solve the problem, when the real fundamental problem here is people aren’t paid enough,” Crandall-Hollick said. “I think a lot of tax lawyers would have an issue with that because tips are literally making up the difference between the sub-minimum wage and the minimum wage,” she said.

Many of them would not benefit from eliminating federal income taxes on tips since they don’t earn enough to pay income tax, according to the center. It’s unclear whether Trump wants to eliminate both federal income and payroll taxes on tips, though he has indicated that he would jettison both. Payroll taxes fund Social Security and Medicare and total 15.3% of a worker’s salary, half of which is paid by employers.

She pointed to a piece written by her colleague Howard Gleckman, in which he notes that the Labor Department estimates the highest-earning 10 percent of wait staff make $60,000 or more annually. This calculator makes tipping quick and easy, ensuring you always leave the right amount based on a standard 15% tip rate. More detailed was his recounting of how the idea came to him in the first place. ’ … And she said, ‘Not great, because they’re after me so viciously for tips,’” he recalled. Another potential outcome is employers and employees may try to game the system. Harris was also in Las Vegas when she announced she supported a similar proposal in August.

She thinks any argument about helping tipped workers should ultimately focus on raising the minimum wage. While getting rid of both taxes would benefit many more people, it would also cost more money. Eliminating just income taxes on tips would cost $106 billion over 10 years, according to Republicans on the House Budget Committee, who are circulating a menu of options for what could be included in their bill to extend the 2017 tax cuts. The Culinary Workers Union Local 226 on Saturday welcomed Trump’s proposal, but said more must be done.

“You know, if the tariffs work out like I think, a thing like that could happen, if you want to know the truth.” However, these workers would then get smaller Social Security payments after they retire. President Donald Trump took a victory lap in Las Vegas on Saturday, basking both in his presidential victory in Nevada last year and the rapid-pace action of his first week in office. President Joe Biden also backs the idea, White House press secretary Karine Jean-Pierre said. People might tip less if they assume workers would keep a greater share of the tips, Gleckman wrote. So every dollar that they get to exclude and not have taxed saves some $0.12 on their tax bill,” Crandall-Hollick said.