President Trump’s initiative to eliminate taxes on worker tips may soon materialize, as senators finalize a substantial budget package dubbed the “big, beautiful bill.” A primary element of this legislation aims to alleviate federal income tax burdens for workers dependent on tips, including waiters, bartenders, and hairdressers. While the White House promotes this move as a success for the working class, critics like the Independent Restaurant Coalition argue that the benefits might be short-lived and that many low-wage workers might not see real assistance.
The proposed “no tax on tips” provision would create a new deduction for tipped workers, removing their federal tax obligations on tips earned. However, these workers would still need to pay state and local income taxes, as well as payroll taxes. Notably, the House and Senate versions of the bill diverge on key aspects, particularly regarding deduction limits.
The Senate’s proposal caps the deduction at $25,000, while the House version allows for no cap. Moreover, the House limits eligibility for the tax break to individuals earning $160,000 or less annually, while the Senate suggests phasing out benefits for those making over $150,000 and couples exceeding $300,000. According to estimates from the White House’s Council of Economic Advisers, abolishing taxes on tips could increase the average take-home pay of eligible workers by approximately $1,675 yearly.
A survey revealed that 83% of hourly workers favor eliminating taxes on tips, indicating that added income could provide essential support for many workers. However, data shows that a significant number of tipped workers may not benefit, as over one-third already fall below taxable income levels. Critics emphasize that the tax break would primarily assist higher earners while leaving many low-wage employees, especially in fast food, without support.
Advocates suggest raising the federal minimum wage as a more effective strategy to help low-wage workers, addressing the root cause of income insufficiency rather than focusing solely on tax deductions.