Latest news with #NoTaxonTipsAct
San Francisco Chronicle
2 days ago
- Business
- San Francisco Chronicle
Will Trump's ‘no tax on tips' plan help or hurt restaurants?
A federal proposal to eliminate income taxes on tips is dividing restaurants around the country, portending a potential boon for the industry's more than two million tipped workers but a blow for their non-tipped counterparts. The 'no tax on tips' policy, championed by both President Donald Trump and former Vice President Kamala Harris during the 2024 presidential campaign, would give a tax break to tipped employees who earn less than $160,000 annually (which would rise with inflation). Once politically unthinkable, it is now closer than ever to reality: The House of Representatives passed last week a domestic spending bill that includes the tax provision, which would add an estimated $40 billion to the federal deficit by 2028. The Senate is set to take it up this week. The Senate in May unanimously approved a separate No Tax on Tips Act introduced by Sen. Ted Cruz, R-Texas. Lawmakers in at least 20 states have proposed similar bills. While servers are excited by the promise of a larger paycheck, critics fear the policy will widen an already large pay disparity between front-of-house workers, who typically augment their wages with tips, and kitchen staff, who historically don't receive them. (Only workers in customer-facing roles are legally eligible to receive tips, under the Fair Labor Standards Act.) The change would have the most devastating economic impact in states where tip pooling is illegal or less prominent, industry experts said; whereas in California, restaurants are permitted to share tips between the front- and back-of-house. More than 500 restaurant owners and workers affiliated with the Independent Restaurant Coalition, a nonprofit advocacy group founded during the COVID-19 pandemic, voiced their concerns in a letter to Congress on Friday. 'As written, the 'No Tax on Tips' provision would leave behind dishwashers, chefs, porters, and other workers who will still be taxed on their wages. The proposed tax exemption for tips will ultimately do more harm than good to the over 11 million people who rely on restaurants and bars for their livelihood — and at a time when they can least afford it,' the letter reads. Erika Polmar, executive director of the Independent Restaurant Coalition, said the policy was created without any input from the food industry. She worries it will make hiring and retaining kitchen workers harder. The National Restaurant Association, a major lobbying group that's worked to suppress minimum wages for workers, backs the legislation. '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,' Sean Kennedy, executive vice president of public affairs for the association, said in a January statement. Sophie Kelly, a server at Friends & Family in Oakland who earns almost half of her wages from tips, would welcome the tax break. On a recent paycheck, she paid $84 in federal income tax. But it's not a permanent change. As proposed, No Tax on Tips would expire in 2028. For Kelly, it feels like when the government issued stimulus checks during the pandemic: 'This is great, but it's not a long term solution.' The three-year timeline will make it difficult for operators to plan ahead, Cheetie Kumar, a restaurant owner in North Carolina and vice president of the Independent Restaurant Coalition board, said during an online meeting the organization hosted Friday. 'In three years we're going to have a compounded, simultaneous breakdown of a labor model that we're going to get used to,' she said. 'That creates a lot of insecurity in our future.' Despite the possible upsides for front-of-house employees, not all of them feel good about the policy. To Alex Lauritzen, who's worked in restaurants for a decade and is currently a server at Bar Gemini in San Francisco, the proposal feels more like a 'Trojan horse' than a genuine effort to support workers. 'I would rather pay my taxes and see reliable public transportation with longer service hours, affordable cities, affordable housing, access to healthcare for all, a living wage, immigration support — all things that would actually benefit workers more than politically charging tipped incomes once again,' Lauritzen said. Some owners, too, feel conflicted about a proposal that would benefit some but not all restaurant workers across the country. At Daytrip Counter in Oakland, for example, all employees are part of a tip pool, so everyone would see a 'notable difference' in their take-home pay, said co-owner Stella Dennig. But in states where tip pooling is illegal, servers would get a major tax break; cooks and dishwashers wouldn't; and owners would be faced with the 'impossible' task of closing that income gap, she said. 'It's hard for me to be like, it's going to be great for us in California when it has the potential to really shift the landscape in places that don't tip pool,' said Dennig, who doesn't support the bill. 'Restaurants can't come back from that. They won't be able to survive that.' Critics also fear the policy could end up harming workers by giving employers a 'justification' to deny wage increases, the nonpartisan Economic Policy Institute recently argued. One Fair Wage, a national restaurant labor advocacy group, found that nearly two thirds of tipped workers would not benefit from the federal proposal because they or their household do not earn enough money to pay income taxes. 'The overwhelming majority of tipped workers in California and America work in very casual restaurants where tips are meager,' said One Fair Wage president Saru Jayaraman. 'The tax cut is really a red herring and a way to pander to this population while simultaneously destroying their ability to survive.' One Fair Wage has instead lobbied for raising the country's subminimum wage for tipped workers, which is capped at $2.13 an hour. The no tax on tips policy is exacerbating ongoing debate in the food industry over gratuity. Since the pandemic, more restaurants have replaced tips with automatic service charges to sustain more equitable wages for all employees. The current tax proposal 'rewards tips,' Idaho restaurant owner George Skandalos said in the Independent Restaurant Coalition's meeting. 'It basically tells us: If you're trying to pay everyone equitably, too bad. You're on your own.'' The Independent Restaurant Coalition is lobbying Congress to amend the provision to include service charges that are used expressly for employee compensation. Dennig, whose previous restaurant used a 20% service charge, said the tax policy 'could threaten the future of service charges in our state because take home pay does have the potential to be notably higher now with tips rather than a service charge.' Back-of-house workers at Friends & Family in Oakland are included in the tip pool, receiving a percentage based on food but not drink sales, Kelly said. 'We're trending towards back-of-house as being seen as just as important as front-of-house when it comes to tips,' she said. 'That culture is changing, which I think is a positive.' In many cities across the country, the service charge has become a lightning rod. Some servers, while supportive of kitchen workers earning higher pay, have pushed back against a policy that means their paychecks are smaller. Controversial legislation to ban 'junk fees' in California last year was ultimately rolled back but exposed just how much diners dislike surcharges. Polmar of the Independent Restaurant Coalition has seen some public reaction to No Tax on Tips from disgruntled customers saying, ''I'm not going to tip anymore. Why should you receive this tax deduction? ' 'I think it's going to create some strife,' she said.
Business Insider
24-05-2025
- Business
- Business Insider
'Tip creep' is pushing some customers to leave smaller tips, and driving others to avoid businesses that ask for them
Customers say they feel like they are being asked to leave a tip at more places, and some are fighting back. About 33% of people surveyed by Morning Consult said that they're expected to tip more, either more often or a greater amount, than they were five years ago. They're not imagining it. From self-checkout kiosks to paying for service on your car at a mechanic's shop, customers are seeing businesses ask for tips in situations where gratuity wasn't previously expected. Consumers are feeling pressure to tip more from that phenomenon, which a report on the survey from Morning Consult calls "tip creep." "The biggest change is that the prompt to tip is showing up in places that we didn't expect it," Lindsey Roeschke, a travel and hospitality analyst for Morning Consult, told Business Insider. Morning Consult surveyed 2,200 adults online in the US between March 14 and 16. Some customers told Morning Consult that they're fighting back. More than 25% of respondents said that they use services that require tips less frequently than they previously did. Almost as big a share — 23% — said that they focus on visiting businesses that don't pressure them to tip more than they have historically. And 16% had another response: Their individual tips are smaller because of all the requests they are getting. "Perhaps due to the perceived pressure related to growing gratuity expectations, a majority of U.S. adults say they've changed their behaviors in some way to account for tip creep," Morning Consult's report states. Expectations around tips could change again if an idea that President Donald Trump floated in his last campaign becomes reality. On Tuesday, the US Senate passed the No Tax on Tips Act, which would create a federal income tax deduction of up to $25,000 a year for workers who receive cash tips. Another version of the proposal is part of Trump's larger budget and immigration bill. The Act would need to pass both houses of Congress and get a sign-off from Trump to become law. If enacted, a tax-free status for tips could create an incentive for more employers and workers to prompt customers for gratuities, one tax expert told CNBC. Despite feeling pressure, Americans are still willing to tip in the right moments. In several situations, from getting a haircut to picking up your car from a valet, more Morning Consult survey respondents said that it was "necessary or expected" to tip than said they felt pressured to tip. Being brought or served food was a major point of agreement: Sixty-nine percent of respondents said it was necessary to tip when dining out at a local restaurant, while 64% said it was the norm when getting food and drinks delivered to their home. Pizza chain Domino's has also seen a lift in tips at many of the new locations that the chain has opened in recent quarters, CEO Russell Weiner said on the company's earnings call last month. Many of the new stores are splitting the service area with existing locations, cutting the time that it takes to get pizzas to customers, he said. "You get hot, predictable deliveries," which, in turn, make customers more likely to order again and leave a bigger tip, Weiner said. Morning Consult's survey also showed that many people support paying service workers a fair wage. Forty-four percent of respondents said that service workers should not have to rely on tips for their income. When asked about whether they would support additional mandatory costs that could support workers, such as businesses adding a fixed service charge between 15% and 20% to their bill, most consumers said that they were opposed. Instead, a majority — 53% — said that tipping should be optional and depend on the service they receive. At the same time, "they also think that service workers need to be paid a fair living wage," Roeschke told BI. "It just reflects this overall tension" around tipping, she said.
Vox
22-05-2025
- Business
- Vox
There's a better way to help underpaid workers than 'no tax on tips'
is a correspondent at Vox, where he covers the impacts of social and economic policies. He is the author of 'Within Our Means,' a biweekly newsletter on ending poverty in America. 'No tax on tips' was one of President Donald Trump's campaign promises that caught on with voters and received bipartisan support. Mandel Ngan/AFP via Getty Images On Tuesday, the Senate unanimously passed the No Tax on Tips Act, pushing one of President Donald Trump's campaign promises one step closer to becoming law. The pledge to eliminate federal taxes on service and hospitality workers' tips rallied voters in the 2024 election, so much so that even former Vice President Kamala Harris endorsed the idea in her campaign against Trump. Now, both Democrats and Republicans on Capitol Hill seem to want to make it a reality. It's easy to see why 'no tax on tips' has broad bipartisan support: It looks like a populist policy that gives lower-wage workers much-needed relief, and opposing it might make you seem out of touch with the working class. But as I wrote last year, 'no tax on tips' would actually be more of a tax break for businesses that would cost the federal government an estimated $10 billion to $15 billion a year in tax revenue. Within Our Means A newsletter about ending poverty in America, from correspondent Abdallah Fayyad. Email (required) Sign Up By submitting your email, you agree to our Terms and Privacy Notice . This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. In short, the policy incentivizes businesses to lower workers' wages and make them rely more on tips. But that's exactly the opposite of what workers — and tipped workers in particular — need. Tipped workers are underpaid. Some of them would certainly see their take-home pay increase if the federal government stops taxing them on tips, assuming that their wages stay the same. But tips can be volatile, and often vary by season, and a 'no tax on tips' policy would make offseasons worse for tipped workers, who will likely be stuck with lower base pay. The reality is that the problem for tipped workers isn't that their taxes are too high — it's that their wages are far too low. Plus, not having their taxes tipped means workers might end up accruing less credit toward their Social Security. In fact, many underpaid workers won't even see a difference from the policy. Some tipped workers — by some estimates more than a third of them — earn so little that they are already exempt from income taxes, which means that a 'no tax on tips' law would do nothing to boost their take-home pay. More than that, 'no tax on tips' doesn't help out most low-wage workers: More than 95 percent of low- and moderate-wage workers don't receive tips on a regular basis. So while Congress busies itself with flashy tax cuts that won't go too far in helping low-wage workers, it might be better to focus on the root cause of tipped workers' problem: the subminimum wage. What is the subminimum wage and why is it so low? The last federal minimum wage increase was in 2009, and it's been the same since: $7.25 per hour. Many states have minimum wages that are higher than the federal level — but most also have a subminimum wage for tipped workers. That's a carveout that allows employers to pay their workers less so long as they make up the difference in tips, and that wage is just $2.13 per hour. If a subminimum wage worker doesn't make enough tips to reach the full minimum wage, the employer is required to pay the difference. These tiered minimum wages date back to the Fair Labor Standards Act (FLSA), passed in 1938. The legislation created a subminimum wage with the intention of encouraging employers to hire people 'whose earning capacity is impaired by age or physical or mental deficiency or injury.' The idea was to ensure that job opportunities and work training programs would still be available for people with disabilities. But in 1966, Congress amended the FLSA to include a subminimum wage for workers who regularly receive tips, hoping this would lower payroll costs for service-sector businesses. This change fundamentally changed the culture around tipping: While customers used to give workers tips as a show of gratitude, tips became a necessity for workers in order to make ends meet. Since then, workers in the service and hospitality sectors in most places have been subject to a subminimum wage that has not increased since 1991. While tipped wages are often sold to workers as a benefit — in theory, there's no limit to how much they can make if customers are generous — the reality is that their overall take-home pay, even including tips, is often not enough. For example, the median wage for waiters in 2024 was $33,760, according to the Bureau of Labor Statistics, and the bottom 10 percent of waiters earned about $18,000. For context, the standard deduction — that is, the portion of your income that is untaxed — is $29,200 for a married couple and $14,600 for an individual. 'No tax on tips' might give waiters a small tax break, but it's hardly enough to work as a meaningful solution to low wages. The movement to abolish the subminimum wage Many workers have grown frustrated with the tiered minimum wage system, leading to the creation of organizations like One Fair Wage, which advocates for getting rid of the subminimum wage — a measure that would likely help alleviate poverty. (At least eight states have eliminated the subminimum wage for tipped workers.) And because a handful of states have already abolished the subminimum wage in favor of one equal minimum wage for tipped and non-tipped workers alike, we can see how the former holds workers back. According to an analysis by the Center for American Progress, tipped workers have a higher poverty rate in states with a subminimum wage compared to states that have abolished it. In states with the subminimum wage, 14.8 percent of tipped workers live in poverty. By contrast, those same workers have a poverty rate of 11 percent in states that have gotten rid of the subminimum wage. The biggest problem with the 'no tax on tips' idea is that it will likely only suppress wages, which will ultimately hurt workers in the long run. There are better ways Congress can help low-wage workers than eliminating taxes on tips, including by expanding the standard deduction — giving a meaningful tax cut to all low-wage workers, not just those who receive tips — or by finally getting rid of the subminimum wage. And they might consider increasing the minimum wage while they're at it. After all, a raise is long overdue.
Yahoo
22-05-2025
- Business
- Yahoo
US Senate passes ‘no tax on tips' bill in unanimous vote
The US Senate passed the No Tax on Tips Act on Tuesday after the Nevada senator Jacky Rosen brought the bill up for a unanimous consent request. 'This bipartisan bill is a good idea. It has support from Democrats and Republicans, so we should pass it, well, as soon as possible, without any poison pills,' said Rosen, a Democrat, on the Senate floor. The bill was introduced in the Senate in January 2025 by Senator Ted Cruz and a bipartisan group of co-sponsors which included Rosen and the Nevada senator Catherine Cortez Masto. No objections were made by Rosen's request, resulting in the passage of the bill, which now goes to the House. The bipartisan bill will create a tax deduction of up to $25,000 for cash tips reported to employers by workers for withholding purposes on payroll taxes, with a cap on the salary for eligible workers at $160,000 annually. The bill calls for the US Department of Treasury to issue a list of occupations that traditionally receive tips within 90 days of the bill's enactment. Ending taxes on tips gained traction during the 2024 presidential election, with Donald Trump touting the plan on the campaign trail in Nevada, and Kamala Harris later endorsing the idea. Related: No tax on tips fires up Nevada hospitality workers: 'I want that!' Economists and labor advocates have criticized the legislation, with concerns it will incentivize the expansion of tipped work, undermine pay increases and would affect only a small segment of about 5% of low-paid workers who receive tips. According to Brookings Institute researchers, 37% of all tipped workers already pay no federal income tax because their earnings are so little, and eliminating sub-minimum wages for tipped workers would be more impactful. 'Without having these earnings floors in place, the minimum wage floor and calling for an increase, workers are vulnerable to exploitation and inequality in the labor market which is harmful overall for the economy,' Lena Simet, a senior researcher Human Rights Watch, told the Guardian in August 2024 on the push to end taxes on tips. 'It doesn't mean that workers can no longer be tipped. It just means a tip comes on top of a wage floor that would guarantee them a minimum.'
Yahoo
22-05-2025
- Business
- Yahoo
Experts debate ‘no tax on tips' bill's impact in WNY
BUFFALO, N.Y. (WIVB) — The bipartisan 'no tax on tips' bill recently cleared the U.S. Senate with strong support, promising to eliminate federal income taxes on tipped earnings for qualifying workers. As the legislation heads to the House of Representatives, local experts are raising questions about how much the change will actually benefit workers in regions like Western New York. WIVB News 4 spoke with Fred Floss, an economics professor at the University at Buffalo, who said that while the bill appears to be a win for service industry employees, its real-world impact may be limited. 'Everybody can vote for it and say we're protecting tipped workers, and that's great,' Floss said. 'But I just would make sure that most tipped workers realize it's not going to have a big impact on their lives.' The Senate's 'No Tax on Tips Act' would eliminate federal income tax on tips received in cash, by credit card or check. Under the bill, employees earning less than $160,000 annually would be allowed to exclude up to $25,000 in tips from taxable income each year. Floss pointed out that many tipped workers already pay little to no federal income tax. 'For most tipped workers, they don't have a lot of tips and they don't make a large salary,' he said. 'I don't know what restaurants or resorts have tipped workers making $160,000.' Floss noted that while workers in upscale establishments, particularly in major markets like New York City, might see a noticeable change in take-home pay, the same cannot be said for many in Buffalo. 'In high-end resorts or very fancy restaurants where tips are significantly higher, it's going to have an impact,' he said. 'But in a place like Western New York, where a lot of the tipped workers are making minimum wage — or actually below minimum wage because tipped workers are allowed to be paid less — they're never going to hit the threshold where they would have paid any income taxes anyway.' At Resurgence Brewing Company in Buffalo, where many staff members rely on tips, event manager Brigid Taylor expressed a different concern: the long-term financial visibility of untaxed income. 'I've been in the industry basically my whole life,' Taylor said. 'I always thought in my world that the tips would be income, and then later on, when you want to buy a house or a car, you can kind of show your income as proof. I feel like with no tax on tips, it might be a little bit harder for us in the service industry to get those cars and houses and loans and whatnot.' The bill now awaits consideration in the House of Representatives. If passed and signed into law in its current form, it would go into effect for all taxable years beginning after 2024. Dillon Morello is a reporter from Pittsburgh who has been part of the News 4 team since September of 2023. See more of his work here and follow him on Twitter. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
