Efforts to eliminate taxes on tips are gaining momentum, buoyed by bipartisan support and campaign promises made during the recent presidential race. The No Tax on Tips initiative, first championed by President Donald Trump during his rallies, aims to alleviate the financial pressures faced by nearly 6 million workers across the United States who depend on tipping as significant supplemental income.
During Trump's second-term campaign kickoff rally held last month at the famed Mandalay Bay Casino in Las Vegas—a city steeped in its service industry—he reiterated his commitment to abolishing taxes on tips. "A tip is a gift — it’s not a guarantee. It’s not something service employees can bank on," said Rep. Steven Horsford, D-Nev., highlighting the precarious nature of incomes for those working primarily on tips. "And it’s not something we should be taxing."
Two significant legislative measures have emerged from these discussions: the No Tax on Tips Act, sponsored by Rep. Vern Buchanan, R-Fla., and the Tipped Income Protection and Support Act introduced by Horsford. Both bills work to tackle the same issues but with different approaches and objectives. Buchanan's bill seeks to exempt tips from taxes up to $25,000, which could benefit countless workers who struggle to make ends meet on minimal wages. Horsford’s proposal goes even farther by eliminating the federal sub-minimum wage of $2.13 per hour for tipped service workers—an amount unchanged since 1991. This two-tiered wage system often leaves workers vulnerable, relying heavily on customer gratuities for their livelihoods.
The backdrop for this legislative push is staggering. The restaurant industry—the largest employer of tipped workers—continues to advocate for the elimination of tax burdens on tips, even as concerns about the sub-minimum wage persist. Only seven states have abolished the sub-minimum wage altogether, leaving the majority of tipped workers across the country subjected to below-poverty wage levels.
Although there is optimism surrounding the No Tax on Tips initiative, potential pitfalls remain. Critics worry about the lack of comprehensive guardrails preventing abuse of the tax elimination. For example, Horsford's bill aims to close loopholes possibly exploited by wealthy individuals, who could classify gifts as tips to evade taxes. The sentiment echoed among unions, particularly the Culinary Union members who represent over 60,000 hospitality workers, is rooted firmly in the principle of fair wages. Diana Bond, a cocktail server, lamented, "We need to make sure all hospitality workers are being treated fairly and getting hourly rates they can survive on. ".
The initiative has spurred political bedfellows, crossing party lines—an unusual occurrence amid the current divisive political climate. Trump's support for the legislation has also resulted in collaborations between Democratic lawmakers and Republicans, including Nevada’s Senators Catherine Cortez Masto and Jacky Rosen, who have co-sponsored related bills at the federal level.
Meanwhile, states like North Carolina are attempting to mirror this concept at the state level with proposals like House Bill 11, which seeks to exempt tips and bonuses from state income taxes altogether. Representative Harry Warren has indicated the bill is still considered preliminary but signals the interest at the state level to follow this growing trend. “It’s just the beginning,” said Warren.
This mounting desire to alleviate the tax burden on tips has raised numerous questions among lawmakers. At recent committee meetings, concerns about potential misuse of the proposed law were discussed. For example, Rep. Jay Adams, R-Catawba, remarked on the importance of having detailed methodologies to prevent individuals from manipulating their income to avoid taxation entirely. "When you figure out how this can be gamed, I’d like to have a long conversation," he said.
Backers of the initiative highlight the importance of response to public sentiment. Buchanan expressed enthusiasm about the positive feedback for the No Tax on Tips measure, stating it appeals directly to the everyday Floridians and workers striving to make ends meet.
“The potential passage of this bill would benefit millions of hardworking Americans regardless of their state,” said Buchanan, reflecting the broad support around it. Simultaneously, the proposal faces resistance from some sectors, particularly within the restaurant industry, who continue to voice concerns over the broader ramifications of eliminating sub-minimum wages alongside taxes on tips.
Opponents caution the push could lead to detrimental changes in workplace compensation structures, extending the precariousness of income for tipped employees. Many argue, like Horsford, the elimination of taxes on tips should not exist without simultaneous recommendations for raising the minimum wage for tipped employees. “Eliminated taxes must be part of overall solutions to help ease the financial burden of working families,” he stated.
While optimism surrounds the elimination of taxes on tips, experts urge lawmakers to navigate this sensitive political and economic terrain with care. The stakes are high as millions of workers depend on tips to supplement minimal wages amid rising living costs and rampant inflation, making the dialogue surrounding these legislative proposals increasingly urgent and relevant.