During Campaign ’24, Donald Trump promised restaurant servers he’d cancel the income tax on tips. In spite of warnings from economists and lawmakers, he’s gone ahead with that. Now, Trump’s No Tax On Tips Act has received Senate approval…
Trump’s No Tax On Tips Bill passes Senate…
The official, stated purpose of the The No Tax on Tips Act, Bill S. 129, is to, “amend the Internal Revenue Code of 1986 to eliminate the application of the income tax on qualified tips through a deduction allowed to all individual taxpayers, and for other purposes.” The bill allows ‘qualified’ employees to deduct up to $25,000 per tax year.”
Some restrictions…
For purposes of the bill, ‘qualified’ means, “any cash tip received by an individual in the course of such individual’s employment in an occupation which traditionally and customarily receives tips on or before December 31, 2023.” So, you can’t up and claim the deduction if you weren’t ‘customarily receiving tips’ before the deadline. That only seems fair.
And the other major requirement to claim the deduction is that you didn’t make more then (US)$160,000 in the ate tax year in question.
HOW much?
If you think&1160,000 is a pretty high threshold for that upper income limit, you’d be thinking like me: “Wow! That sounds like a lot of money for a restaurant server or bar tender to be making!” And right after that, you’d asking, “Why would someone making that much need an extra tax break just to make ends meet?”
Nevertheless, that’s what the Bill says.
Who are you?
The Budget Lab at Yale University last year conducted a survey on tipped workers which revealed some interesting facts and figures…
‘Tipped occupations’ include jobs such as waiters and waitresses, bartenders, barbers, and hairdressers, The Budget Lab explains. By that definition, the Lab estimates that there were roughly 4 million workers in tipped occupations in 2023, about 2.5 percent of all American workers.
The Lab also notes, the average age of tipped workers in the US is just 31, while the average age of non-tipped workers is 41: “A third of tipped workers are below [age] 25, with 13 percent being teenagers.” As such, “Many already have very low federal income tax liability.”
On the same page
For once, it appears everyone involved in the issue is on the same page… The bill has support on both sides of the aisle, in both the Senate and the House of Representatives. And the major lobb7y groups for both restaurateurs and their employees are in favour…
The National Restaurant Association this past January said, in a statement, “Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and foodservice industry and could help restaurant operators recruit industry workforce. The No Tax on Tips Act of 2025 is sensible legislation that includes refinements and protections to make it fiscally responsible while still supporting our employees.”
My take
Alas, to paraphrase an old proverb: “Every silver lining has its cloud.”
As it’s written now, the No Tax On Tips bill has a sunset clause that would see its provisions end in 2028. At which time it would have to be renewed to remain in effect By that time, Congressional budget analysts project it could result in a $40 billion increase in the deficit. And if it was made permanent, the Committee for a Responsible Federal Budget estimates the Bill would increase the deficit by $120 billion by 2035.
But, as many a politician with a Bill to push has implied, that’s what deficits are for: to push the costs back…
~ Maggie J.