Latest news with #noTaxOnTips
Yahoo
a day ago
- Business
- Yahoo
Has no tax on tips passed? Here's where things stand
As a presidential candidate last year, Donald Trump called for no taxes on tips — an exemption from the federal income tax for all tipped income. So where does that promise stand now? There is a provision in the 'big, beautiful bill' passed by the House in May, which the Senate is now considering. The tax break is included in both the House and Senate versions of the bill, so it seems likely to make it into the final version sent to Trump's desk. Plus, the Senate already voted unanimously on a separate bill that would do the same thing. Here are answers to some common questions about the 'no tax on tips' proposal: Trump first proposed to end taxation on tipped income at a campaign rally on June 9, 2024, in Las Vegas, a direct appeal to the service workers in the swing state's tourism industry. 'So this is the first time I've said this, and for those hotel workers and people that get tips, you're going to be very happy, because when I get to office, we are going to not charge taxes on tips people [are] making,' Trump said. It was part of a broader set of proposals thrown out with little detail during the campaign, including a pledge to exempt overtime pay from income tax. It was one of Trump's more realistic promises, however, as the idea quickly gained bipartisan support, including from Kamala Harris' campaign and Democratic Sen. Jacky Rosen of Nevada plus Republicans such as Texas Sen. Ted Cruz. It was also one of a number of campaign pledges he promised would be fulfilled right away if he won a second term. The Big Beautiful Bill Act, which passed the House, includes an income tax exemption for tips. As with the proposed $1,000 baby bonus and the exemption for income tax on overtime pay in the bill, the tips tax break would expire at the end of 2028, days before Trump's term ends. That helps Republicans in Congress keep the apparent cost of the bill down while setting up another fight on the issue just as the next president takes office. Under the House proposal, workers making less than $160,000 per year would qualify for the exemption. Tips would still have to be reported to the IRS, and they would be subject to withholding — meaning money would be taken out of each paycheck but workers would get it back if they were owed tax refunds the next April. Social Security and Medicare taxes would still apply to tipped income. The exemption would not apply to automatic gratuities for large parties at a restaurant and other service charges. The Senate passed a standalone bill called the No Tax on Tips Act in a surprise vote in late May. Rosen brought up the bill as a "unanimous consent" request, an accelerated process typically reserved for more routine issues, such as renaming post offices. But no senator objected, and the bill was quickly passed. The bill would create an income tax exemption of up to $25,000 for workers in jobs that have traditionally received tips who make less than $160,000. The exact jobs covered by the exemption would be decided by the Trump administration within 90 days of the bill's signing. As with the House bill, the Senate version would expire just as Trump leaves office. If it expires, the total cost of the measure would be about $40 billion. The Committee for a Responsible Federal Budget estimated that if the measure is extended over 10 years, it would cost more than $100 billion. The White House Council of Economic Advisers — which works for Trump — estimated that the measure would increase the average take-home pay for tipped workers by $1,675 per year. The Tax Policy Center, however, noted that the amount would vary greatly depending on the job. Half of all wait staff make $32,000 or less a year, which means they already pay little or no federal income tax. But the measure would give a much bigger break to the highest-paid tipped workers who make $60,000 or more a year. "A 20 percent tip on a $200 meal is vastly different than one for the $9.95 special at Mom's Diner," the nonprofit said in an analysis. As with the exemption on overtime pay, there's a wide range of possible outcomes. It's possible that the measure would simply end up reducing the annual tax bill for the top tipped workers and have no other effects. Or it could lead customers to give more — or possibly even less — in tips to wait staff, hairdressers and others once they know the money isn't taxed. Some economists think the exemption would undercut ongoing political efforts to increase the minimum wage for tipped workers, which is currently $2.13 per hour at the federal level. This article was originally published on
CBC
4 days ago
- Business
- CBC
No tax on tips? Experts warn against bringing U.S. proposal to Canada
The idea of "no tax on tips" has found a way to appeal across party lines in the U.S. The policy is winding its ways through the halls of American government — but economists warn, it's not an idea worth pursuing here in Canada. "It would be just as silly of an idea in Canada as it would be in the United States," Alex Muresianu, a senior policy analyst at Washington, D.C.-based Tax Foundation said. The No Tax on Tips Act passed the U.S. senate in a unanimous bipartisan vote last month. Similar provisions are being worked into the One Big Beautiful Bill currently before congress. What Trump's 'Big Beautiful Bill' means for Canadians' wallets 5 days ago Duration 4:49 U.S. President Donald Trump indicated that he would increase government spending and loosen some fiscal restraints with a new spending bill dubbed the "big beautiful bill" last week. Mark Ting, a partner with Foundation Wealth and On The Coast's personal finance columnist, says that markets have already responded positively to the bill. "It's catchy. I think 'no tax on tips' just rolls off the tongue very easily. And I think that is probably a big part of why it's caught on," Muresianu said. While the idea was backed by both Donald Trump and Kamala Harris in the recent U.S. presidential election, it didn't come up in Canada's recent federal election — something that surprised UBC economics professor Kevin Milligan. "I think that's a good thing," Milligan said. "I think that the focus on making sure that workers feel that they get a good deal from the government by looking carefully at the taxes that working families pay, I think those are good things." The No Tax on Tips Act exempts those making less than $160,000 a year from paying tax on tips, and capped the deduction at $25,000. There are similar provisions in the budget bill that is now before congress, though it does not include the cap. When asked how much he pays in taxes on his tips, Windsor server Dawson Ryan says it's "too much." He says tips are "almost the entire job," for him to make a living on top of minimum wage. Taking away the burden of taxes on tips would go a long way, he says, in helping him get by. "I feel like honestly it would get more people into the industry as well," he said. Maiden Lane assistant manager Olivia Holt says that, of course, the change would be welcome — but sees both sides of the issue and understands why some might call it a bad idea. But Holt says she does want to see the process of accounting for tips during tax season simplified. "It's already such a headache and figuring out what forms you have to fill out," Holt said. 'Treating a buck as a buck' "What problem is it solving?" asked Christine Neal, chair of the economics department at Wilfrid Laurier University. "Certainly from an economics perspective, no one has explained it well. Maybe from a politics perspective, but I'm not even sure of that to be honest." She says while it might be true that a lot of people who earn tips are themselves low income, it doesn't mean they're paying a lot in taxes already. "It ends up being these higher income people that might be benefiting the most," she said. Kevin Milligan at UBC says the tax system shouldn't be distinguishing between different types of income. "We'd like to think of treating a buck as a buck," he said. "Not caring too much whether it's tip income or other kinds of income. So that's why just helping out those with tip income is most likely something that's not the best way to go." Neall agrees when it comes to not giving different treatments to different types of income. She says it helps keep overall taxes lower than they otherwise would be and stops "loopholes that people can use for tax evasion or tax avoidance purposes." 'A good thing' says Canadian Taxpayers Federation Kris Sims is the Alberta director of the Canadian Taxpayers Federation, a group that would like to see taxes come down across the board. She says an initiative like this would be a nice thing to think about for Canada, and a starting point. "At the end of the day, a tax cut is a tax cut. If we can get it for people even if it's for a certain class of people who just get tips, that's a good thing. Sims says she can understand why politicians in Canada might have avoided the idea during the federal election because of perceptions people have about Donald Trump and his push for the plan — but it shouldn't stop anyone from bringing the idea forward now.
