Latest news with #tippedworkers
CBS News
23-05-2025
- Business
- CBS News
Do you get paid overtime or tips? Here's how the GOP tax bill could impact your money.
The massive Republican-backed budget bill — called "one big, beautiful bill" by President Trump — includes several new tax rules that could have a big financial impact on millions of workers who earn tips or overtime pay. While the heart of the bill is an extension of Mr. Trump's 2017 tax cuts, the legislation also includes several provisions that were part of the president's campaign last year, such as his vow to eliminate taxes on tipped income. The bill could deliver savings of about $1,700 for each tipped worker as well as employees who earn overtime, the House Ways and Means Committee said on May 20. But there are some restrictions in the bill that could limit the financial boon for these workers, with some policy experts saying that the tax breaks may not be as useful as they first appear. For instance, almost 4 in 10 tipped workers earn so little that they pay no federal income tax, according to the Brookings Institution. Consequently, the tax break is likely to provide a bigger helping hand to higher-paid tipped workers, while leaving some low-income workers behind. "If your goal is to help the poorest service workers, this is probably not the way to do it," said Michael Lynn, a professor of services marketing at Cornell University whose research largely focuses on tipping and other consumer behavior. The 1,100-page bill, which squeaked through the House on Thursday by a single vote, will now go to the Senate, where more changes are likely. Here's what to know about the provisions as they now stand. How would the "No Tax on Tips" provision work? Called the "No Tax on Tips" provision within the House bill, the rule would create a new tax deduction that eliminates federal income taxes on tips for people who work in jobs that have traditionally received them. There are about 4 million people in the U.S. who work in tipped occupations, or about 2.5% of all U.S. workers, according to the Yale Budget Lab. The tax break includes some restrictions: Only those who earn less than $160,000 in 2025 would qualify. Only workers with Social Security numbers can qualify, and if they are married, their spouse must also have a Social Security number. Tips must be reported to the employer and included on the worker's W-2 tax form. The provision would go into effect in 2025, but expire after 2028, making it a short-term tax break. The deduction would only apply to certain jobs: The Trump administration must publish a list of occupations that qualify for the provision within 90 days of the bill's passage. "The tip exemption will significantly increase take-home pay for most tipped workers, many of whom are low- to middle-income taxpayers," the White House's Council of Economic Advisers (CEA), a group that advises the president on economic issues, said in a report published earlier this month. The CEA's report estimates that the average take-home pay for tipped workers would increase by $1,675 per year under the provision. Would it help all tipped workers? No, because 4 in 10 tipped workers earn too little to pay federal income taxes, which means they wouldn't see any benefit. There's also a concern that some employers could reclassify some workers as tipped workers by arguing they would receive a tax break, according to Brookings. The minimum wage for tipped workers is $2.13 per hour, versus $7.25 an hour for non-tipped workers. One Fair Wage, an advocacy group representing service workers, criticized the measure, noting that the GOP bill also includes cuts to social safety net programs that many tipped workers rely on. "It also slashes Medicaid, putting 1.2 million restaurant workers at risk of losing health care," One Fair Wage posted on social media. What about the Senate's No Tax on Tips Act? A separate, standalone bill called the No Tax on Tips Act, which is solely focused on giving a tax break to tipped workers, was passed by the Senate on May 20, with bipartisan support. That bill will now move to the House for a vote. The Senate bill offers similar benefits and restrictions as the "one big, beautiful bill" when it comes to taxes and tips, but with one major difference: The bigger GOP bill requires workers, as well as their spouses, to have a Social Security number. That requirement appears to be aimed at excluding some immigrants from tapping the tax break, while the Senate bill doesn't stipulate that taxpayers who claim this break, or their spouses, must have a Social Security number. Senator Jackie Rosen, a Democrat from Nevada, urged lawmakers to pass the Not Tax on Tips Act arguing in a statement that the bigger GOP bill combines the tax break with cuts to vital programs like Medicaid and food stamps. "We shouldn't be forcing working families to choose between keeping their health care or keeping their tips, which is why we want this bipartisan bill on its own — on its own — not part of a harmful, extreme budget bill," Rosen said on the Senate floor on Wednesday. How does the "No Tax on Overtime" provision work? The GOP bill includes a tax break for workers who receive overtime, another one of Mr. Trump's campaign promises. About 8% of hourly workers and 4% of salaried workers receive overtime pay on a regular basis, according to the Yale Budget Lab. About 70% of salaried workers don't qualify for overtime pay, it noted. The legislation would enable workers to claim a deduction on their taxes for the amount they earned in overtime pay during the tax year, although there are some restrictions: Workers would need a Social Security number to claim the tax break, and if married, their spouses would also need a Social Security number. The tax break would go into effect in 2025 but expire after the 2028 tax year. But more guidelines about the provision would still need to be determined by the Treasury Department, according to tax firm Wolters Kluwer in a May 22 publication about the tax bill. The average overtime worker would see a tax cut between $1,400 to $1,750 per year through the new break, according to the Council of Economic Advisers. Aimee Picchi Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports. contributed to this report.
Forbes
21-05-2025
- Business
- Forbes
Senate Passes A 'No Tax On Tips' Bill—Here's How It Differs From House Version
The Senate's version of the bill would cap the deduction at $25,000. getty In a surprise move, the Senate passed the No Tax on Tips Act. The vote was unanimous. The bill was originally introduced by Sen. Ted Cruz (R-Texas) to little fanfare. However, on May 20, Sen. Jacky Rosen (D-Nev.), one of seven cosponsors of the bipartisan bill, brought it to the Senate floor, where it passed by unanimous consent. Unanimous consent is a procedural tool that is exactly what it sounds like—it requires the unanimous agreement of all Senators. You don't typically see it used in tax bills, as it's generally used for noncontroversial resolutions and simple requests, neither of which typically falls into the tax policy basket. Rosen noted that no tax on tips was a campaign pledge made by President Donald Trump. 'And I am not afraid to embrace a good idea wherever it comes from,' she said on the Senate floor, noting that Nevada has more tipped workers per capita than any other state. The bill would allow a federal income tax deduction for workers who typically receive tips as part of their compensation—think hairdressers and food service employees. The income must be reported for tax purposes and would still be subject to payroll taxes (more on that in a moment). Highly compensated employees (those who make over $160,000 in 2025) would be excluded. And to curb abuse, Treasury is directed to craft regulations or other guidance to 'prevent reclassification of income as qualified tips... to prevent abuse of the deduction.' It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. It also means that tips would remain subject to payroll taxes, including Social Security and Medicare, for employees. The bill now heads to the U.S. House of Representatives as a standalone piece of legislation. It largely mirrors the 'no tax on tips' text found in the 'big, beautiful bill' moving forward in the House. So why carve it out? Politics. Rosen told her colleagues, 'The problem is that the House Republicans have included a version of the No Tax on Tips Act in their bigger budget bill—a bill that cuts Medicaid, SNAP, and other programs families rely on, to give more tax breaks for billionaires and the ultrawealthy. So we shouldn't be forcing working families to choose between keeping their healthcare or keeping their tips, which is why we want this bipartisan bill to pass on its own—on its own—not part of a harmful, extreme budget bill.' There are some differences between the two versions. As proposed in the House, the deduction would only be for tax years 2025 through 2028—for individuals who work in what are considered 'traditionally and customarily tipped industries.' (According to the proposal, that would only include industries that accepted tips on or before December 31, 2024—Treasury is directed to make a list of those that qualify.) The Senate version of the bill, as passed, is effective for tax years beginning in 2025—there's no proposed end date. The Senate bill caps the deduction at $25,000, while the House version has no cap. The House version allows a full deduction of 'an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual.' A final—and important distinction—is that the Senate bill does not appear to apply to self-employed persons. While the House version includes language specifically including tips received in the course of a trade or business in the definition of qualified tips, that section is noticeably absent from the Senate version of the bill. The likely reason for those differences? Cost. The House version of the bill is cheaper, something that fiscal conservatives in the House and Senate will be mindful of as conversations about the growing federal deficit continue. Both versions of the bill would allow employers a break via a tip credit. The deduction, which has been in place since 1993 for restaurants, is known as the 45B credit and allows for a rebate on the entire employer side of payroll taxes on tips. The instructions for claiming the 45B credit made clear it covers tips to employers involved in "providing, delivering, or serving food or beverages for consumption." The result is that tips provided elsewhere—like in salons—are subject to payroll taxes for both employees and employers, even though not a penny goes to the salon. The Senate and House bills propose to change that by extending the benefit to the beauty industry. Under the amendment, section 45B would be amended to include barbers and hair care, nail care, esthetics, and body and spa treatments. Confused about the employer versus employee sides of payroll taxes? For wage earners, Social Security and Medicare taxes are called FICA (Federal Insurance Contributions Act) and are taken out of your paycheck. Taxes on self-employment income are sometimes called SECA (Self-Employment Contributions Act) taxes since self-employed persons pay both the employee and employer contributions. If you're employed, you pay Social Security tax at a rate of 6.2% as the employee, and your employer pays the same tax rate on your behalf. If you're self-employed, you are responsible for both parts. Social Security taxes are subject to a wage cap. That means you pay Social Security taxes on your earnings until you hit the magic number. After that, your wages are no longer subject to Social Security taxes. For 2025, the magic number is $176,100. That means that whether you make $1,000 or $100,000, you will pay Social Security taxes on your income. But if you earn $176,101? You'll pay Social Security taxes on the first $176,100, but not on the extra dollar. And if you earn $1,176,100? Same result: you'll pay Social Security taxes on $176,100, but not on the extra million. In contrast, all wages are subject to Medicare taxes. If you're employed, you pay Medicare tax of 1.45% as the employee, and your employer kicks in tax at the same rate. As before, if you're self-employed, you'll pay both portions, for a total tax rate of 2.9%. High-income taxpayers are also subject to an additional Medicare tax of 0.9% tacked onto wages that exceed $200,000 for single filers—those thresholds are $125,000 for married taxpayers filing separately and $250,000 for married taxpayers filing jointly. If you're a wage earner, your employer collects your Social Security and Medicare payments and remits both their portion and your share to the government. Self-employed persons pay the IRS directly. Retaining payroll taxes on tips and overtime may mean a bigger bite at tax time, but there is an upside: No matter who pays, these taxes are credited toward your retirement benefits. The House version of the bill is still working its way to the floor. To become law, the language in the two versions must match exactly. Considering the cost considerations, that could prove to be a challenge.
Washington Post
21-05-2025
- Business
- Washington Post
In D.C.'s new world of eating out, when is a service fee a tip?
In 2022, D.C. voters approved Initiative 82, a ballot measure that makes restaurants take more responsibility for paying their tipped workers instead of having wait staff rely on customers' generosity. But after two years of operating under the new system, in which restaurant workers get a minimum of $10 per hour rather than the old tipped wage of about $5 an hour, there's trouble in the eateries of the capital city. Dining out in the District has become akin to flying on Spirit: The price is rarely the price. When the check comes, it's often so laden with explanations of new service fees — levied by restaurant owners trying to afford the new pay scale — that bills now rival CVS receipts in yardage.
New York Times
19-05-2025
- Business
- New York Times
Trump Wants to Fulfill His ‘No Tax On Tips' Promise. The Details Get Tricky.
Several of the proposals that House Republicans have outlined in their expansive tax bill have drawn concern from the public and within the party itself. But one tax cut provision within the House majority's plan is receiving an unusual level of public, bipartisan approval — a rule to eliminate federal income taxes on tips. 'No Tax On Tips,' which was one of President Trump's most buzzy, populist campaign pledges in 2024, polls quite well. An Ipsos survey found roughly three in four Republicans, Democrats and independents were in support. The proposal, which would reduce federal revenues about $11 billion a year, currently appears likely to end up in whatever final bill moves through Congress and heads to the president's desk to be signed into law. Tipped workers in the bottom 60 percent of the income distribution would receive an average tax cut of $1,260 if tips were excluded from income taxes. A broad chunk of restaurant workers and bartenders, a large share of hotel staff, barbers, salon workers, tour guides and delivery and Uber drivers are among those who most likely stand to benefit. The policy push has created odd bedfellows. The National Restaurant Association, the powerful business trade group that often lobbies against minimum wage increases for workers, has been supportive of the policy for tipped workers, who are subject to a lower minimum wage than others in the vast majority of the United States. Yet a unique mix of labor economists, budget hawks aligned with liberals and conservatives, and even some restaurant interest groups have come out against the No Tax On Tips idea. 'The Fair Labor Standards Act specifies that you can only receive tips if you are customer facing, so that means cooks, dishwashers, porters and bussers, in some cases, are all not receiving tips,' said Erika Polmar, the executive director of the Independent Restaurant Coalition, a group that represents the small and midsize market. 'What this means,' Ms. Polmar argues, 'is that servers are suddenly going to get a substantial tax credit, whereas cooks and such are not, and restaurants can't afford to just keep increasing minimum wages to make up that difference.' If tipped workers at a restaurant make more than their colleagues who don't get tips, those workers could either demand more money or take up tipped-eligible roles themselves elsewhere. That could put a significant amount of wage pressure on the service industry, Ms. Polmar said, at a time when many businesses in her coalition are worried about maintaining their profit margins, which are relatively low compared with other industries. For some workers, though, the pressure that No Tax On Tips may put on restaurants to give greater compensation to everyone involved in the operation is a feature not a bug — even if it causes some headaches for managers and owners at first. 'My opinion on the whole No Tax On Tips thing is I'm working based on a salary of $2.50 per hour as a server, right? So it's me working my butt off for my tips; why are they taking money from me when I'm the one who is putting in the work,' said Chase Morales, a waiter, bartender and host, working in Midland, Texas. 'I'm still paying my taxes for my hourly wage,' he added. The U.S. tax code has long been filled with different nooks and crannies that treat one type of business, or a certain form of income, more or less favorably than others. But several analysts at influential think tanks based in Washington oppose the Trump-led tips provision because it appears primed to add yet another special tax exemption. 'We're not a huge fan of doing tax policy that's just for one industry, having special sets of rules that advantage one industry over another,' said Alex Muresianu, a senior policy analyst at the nonpartisan Tax Foundation. But Mr. Muresianu acknowledged the 'market distortions' of the policies could lead to near-term gains for workers, as people potentially flock into 'tipped-eligible' roles to earn more take-home pay. Still, the details of who exactly will benefit from the proposed gratuities tax break can get complicated. 'If a low-income taxpayer already has zero taxable income due to the standard deduction, the tip deduction would provide no additional benefit,' said Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a right-leaning think tank. In other words, many lower-income Americans already owe nothing in federal income taxes (even though they pay local, state, sales and other taxes) and the No Tax On Tips provision, as currently written, will not give them any extra federal tax relief. 'It's more of a middle income benefit, not a low-income benefit,' Mr. Pomerleau said. Putting aside potentially confusing details for tax filers, there is also the question of whether No Tax On Tips would lead to less pressure on employers to raise wages — not more. Most employers in the leisure and hospitality industry are already granted the remarkably unique state subsidy of being allowed to pay workers a sub-minimum hourly wage by law. No Tax On Tips would extend another carve-out to them, Stan Veuger, a fellow at the American Enterprise Institute with Mr. Pomerleau, argued, because it would put less pressure on firms to raise pay when efficiency gains or higher sales lead to greater productivity. But in an interview Mr. Veuger also acknowledged the straightforward outcome for most tipped workers, especially those who are single. For a tipped worker in any given American city, he said, 'If you make $60,000 and you do not have kids, it definitely benefits you.' Brendan Duke, the senior director for federal budget policy at the Center on Budget and Policy Priorities, who previously served as a policy adviser in the Biden administration, sees flaws in the No Tax On Tips provision that mostly have to do with scale. To him, the tax cut amounts to an understandably popular but inefficient means of providing tax relief to working class households overall. Mr. Duke and Mr. Veuger both said they would prefer a tax break for lower-income households that applied across the board, regardless of role, such as an increase in the earned-income tax credit. House Republicans are 'touting this as their working class tax break and it just doesn't deliver a lot because the vast majority of working class folks don't work for tips,' Mr. Duke said. 'I think it mostly serves as a shield for all those trillion dollar tax breaks tilted toward wealthy people that cost a lot more.'
CBS News
09-05-2025
- Business
- CBS News
Chicago restaurants want Mayor Johnson to support repeal of law phasing out tipped minimum wage
Some Chicago restaurants are hoping Mayor Brandon Johnson follows D.C. Mayor Muriel Bowser's lead, and moves to repeal a law eliminating the city's sub-minimum wage for tipped workers. Last July, Chicago started to phase out the lower minimum wage for tipped workers, meaning their employers would start to pay them more, increasing their wages over the next five years until reaching the full minimum wage by 2028. Chicago was following cities like Washington, D.C., where they'd already had a similar system in place. But on Monday, Bowser said that method is failing employees and small businesses and proposed repealing that city's law eliminating the sub-minimum wage for tipped workers. Some small businesses in Chicago said this new way of doing business is the final nail in the coffin for their American dream. They've already been dealing with increasing costs for goods and labor, and phasing out the lower minimum wage for tipped workers is adding to that burden. "Just drive down your city streets. Look to your left, and look to your right, and count how many stores are vacant," said Mario Ponce, the former owner of Takito Street in Lincoln Park, which closed in February. After more than a decade in business, Ponce closed Takito Street in February; 65 people lost their jobs. "The labor part of our business model, and I would argue most restaurant business models, is the most expensive part. So if your wages are going up quickly, how do you pivot?" he said. Wages for tipped workers in Chicago went up from $9.48 to $11.02 per hour last summer. Over the next five years, that wage will increase 8% each year until it reaches the full minimum wage in 2028. Illinois Restaurant Association CEO Sam Toia, whose organization opposed eliminating the lower minimum wage for tipped workers in Chicago, said Bowser is doing the right thing by asking the D.C. Council to repeal the 2022 measure passed by voters, phasing out the lower minimum wage for tipped workers in the nation's capital city. "We think that's pragmatic decision-making that accounts for the job losses and restaurant closures that D.C. has faced since the elimination started," Toia said. The Illinois Restaurant Association said 100 Chicago restaurants closed between July 1, 2024, and Dec. 31, 2024, with 5,200 jobs lost. "Stop increasing the cost of doing business. It affects the consumer, because prices are going to increase; and it effects employees, because small businesses cannot afford the expense," Ponce said. Nonetheless, Johnson defended the ordinance phasing out Chicago's tipped minimum wage. "It stabilized our workforce," he said. The mayor feels the "One Fair Wage" ordinance approved by the City Council in 2023 has been a huge success. "For businesses, having a strong consistent workforce, there's a benefit to that particular establishment," he said. Supporters of the "One Fair Wage" policy claim tipped workers in Chicago are earning more overall, because their base pay is higher and they still get tips on top. They said this new system helps women and people of color who were not making the minimum wage without this rule, although under the old law, business owners were supposed to make up the difference when an employee's combined wages and tips didn't add up to the full minimum wage.
