During last year’s presidential campaign, Donald Trump promised to eliminate taxes on tips for workers who rely on them, such as restaurant servers, bartenders, and valets. His opponent, Kamala Harris, also supported this idea for service and hospitality workers. A version of Trump’s proposal was included in the 2024 Republican platform, calling for no taxes on tips for millions of restaurant and hospitality employees. Trump reiterated his commitment to the proposal in January 2025, vowing that workers’ tips would be fully theirs, regardless of their occupation.
Key Aspects of the Proposal:
- Overtime Pay: Exempting overtime pay from income tax would allow workers to retain more of their hard-earned income, potentially increasing take-home pay and boosting economic growth.
- Tips: Eliminating taxes on tips would particularly benefit service industry workers, such as restaurant staff, delivery drivers, and gig workers who rely on gratuities as a significant part of their income.
- Social Security Benefits: Exempting Social Security benefits from taxes would increase disposable income for retirees, potentially enhancing their quality of life and contributing to local economic activity.
What are tip taxes?
Under the Tax Code, tips of $20 or more received by an employee in any month from one job are treated as wages subject to withholding. Cash tips include those received directly from customers, via credit and debit card charges that are distributed to an employee, or via a tip-sharing arrangement. Employees must keep a daily record of tips received and report these to their employer.
Employers must withhold income taxes and the employee’s share of Social Security and Medicare (FICA) taxes based on wages and reported tip income and deposit this amount. Employers also must pay the employer portion of FICA taxes based on an employee’s total wages and tip income.
Tax-Free Tips: Reactions and opinions of experts and stakeholders
“I think it could benefit a lot of people,” Ryan Hughes-Svab, who along with her husband, Martin Svab, owns and operates The Misfit Lou restaurant and bar, told USA Today of the policy proposal. “But I also do think when you look at the negative side of it, there could be some of these repercussions. There’s the overtipped culture, and then … bigger companies that are like, ‘Oh, we can save money by paying people less and using this bonus.'”
“Eliminating taxes on tips and ending the $2.13 sub-minimum wage, along with going after big corporations’ price gouging on food, gas, and housing, must be part of an overall programme to tackle the high cost of living for working families,” said the Culinary Union secretary-treasurer, Ted Pappageorge, in a statement on the reintroduction of the Tips Act.
“It’s outrageous that many companies across the country still pay tipped workers as little as $2.13 an hour. The legislation that Congressman Horsford is championing will uplift millions of workers, including many in Nevada, by eliminating federal income taxes on tips and ending the sub-minimum wage.”