July 6, 2025 9:00 AM ET By Ellen Westbrook
Trump’s No Tax on Tips Exemption: Unpacking the Hidden Details For Workers (Both Sides Views)
President Trump’s initiative to eliminate federal taxes on tips has garnered widespread support, but a deeper look reveals significant complexities and exclusions in its potential benefits for workers.
Short Summary:
- The proposed “no tax on tips” policy primarily benefits high-earning tipped workers.
- Many low-income tipped workers may not see any tax savings due to existing income thresholds.
- Critics warn that the policy could exacerbate inequities in the workforce and lead to increased operational costs for businesses.
Left Views on ‘No Tax on Tips’
President Donald Trump’s commitment to abolishing taxes on tips has not only become a slogan for his administration but is rapidly making its way toward becoming law. By proposing a tax deduction specifically for workers who receive tips, the legislation aims to provide financial relief for those in the hospitality industry and beyond. With the House of Representatives passing this significant tax measure, and the Senate supporting it shortly thereafter, the details of the policy are now essential to understand for both workers and employers.
The proposed provision, which aims to cut federal income tax on tips, targets only a subset of the United States workforce. Approximately 3% of American workers are in roles where tipping is a common practice, such as in restaurants, bars, and some service industries. The current legislation, however, positions this benefit in such a way that it may not be as advantageous for the lowest earners and could even create disparities among workers performing similar jobs.
The core of the proposal is structured as a deduction allowing tipped workers to exclude up to $25,000 of their tips from their taxable income. While this sounds beneficial, it is imperative to note that this deduction applies exclusively to federal income tax. Tipped workers would still be responsible for payroll taxes, such as Social Security, which stands at 6.2%, and potentially state income taxes, further complicating the financial landscape for workers earning tips.
“About 37% of tipped workers already do not owe any federal income tax,” explained an estimate from the Budget Lab at Yale.
So, while some may rejoice at the idea of tax-free tips, a significant portion of low-income workers may not receive any tangible benefits. For instance, college students working summer jobs as servers may find that their income falls below the standard deduction – currently set at $16,000 for individuals – rendering any proposed benefits effectively moot. If they make less than this amount, the lack of taxable income means they receive no tax savings at all once the deduction is applied.
This proposal raises further concerns about fairness in the workplace, as individuals in similar income brackets may face differing tax burdens based solely on whether they earn their income in tips or wages. Here lies the conundrum: two workers earning $40,000—one as a bartender and the other in retail—will likely be taxed differently, leading to what critics argue is an inequitable distribution of tax liabilities.
Disparities and Exemptions
Notably, the Republican-crafted bill includes constraints that limit the benefits primarily to higher-income tipped workers, specifically phasing out eligibility for those earning over $160,000 per year. This provision ensures that higher earners may benefit more significantly from the deduction, potentially creating a situation where low earners miss out altogether, as highlighted by a review conducted by the Tax Policy Center, which found that the proposal would primarily aid the top 20% of earners in the tipped workforce.
“The average tax cut for families benefiting from the proposal could be around $1,800, but for those at the bottom income levels, it may reduce their tax burden by only $200,” stated analysts from Yale’s Budget Lab.
While proponents argue that removing taxes on tips can incentivize increased earnings for certain employees and reduce reliance on employers for guaranteed compensation, critics voice valid concerns over the ramifications resulting from this legislation. “This bill is a distraction from the real fight,” states Saru Jayaraman of One Fair Wage, underscoring that the focus on limiting taxes on tips can overshadow the pressing need for raising the federal minimum wage, which would diversify and extend benefits to a greater number of working Americans.
The Implications for Businesses
Employers, particularly in the service sector, have mixed feelings about the proposed measure. Supporters, like Sean Kennedy from the National Restaurant Association, welcomed the chance to reduce operational costs, stating:
“Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and food service industry.”
However, concerns arise that such tax breaks could escalate the ongoing debate around tipping culture, encouraging establishments to do away with practices that ensure a stable income. Critics argue that this incentivizes reliance on tipping rather than providing a living wage, leaving the burden of compensation largely on the customer rather than the employer.
Economic Considerations
The long-term economic impact of such a policy hangs in the balance, with projections indicating that the federal deficit could swell by $40 billion over the next several years as a direct result of implementing the tax deduction for tips. The Washington-based Committee for a Responsible Federal Budget warns of the financial pitfalls of such a proposal, suggesting it might merely become another temporary fix rather than a sustainable solution for working-class Americans.
Political Support and Opposition
The “no tax on tips” initiative enjoys remarkable bipartisan support, however, opposition is stemming from concerns about the inequities it may propagate. Both Democrats and Republicans have voiced their support in principle, yet the gravity of its implementation and potential inequalities raised apprehensions among social justice advocates and economic analysts alike.
The proposed legislation reflects a demand for a more streamlined and equitable tax code; however, tax policymakers like Joseph Rosenberg of the Urban Institute are skeptical.
“It’s the exact opposite of the general principles that tax policy purists advocate for,” he remarked, emphasizing the need for a more uniform tax strategy that does not favor specific occupations over others.
A Complex Proposal Ahead
Ultimately, the pending enactment of the “no tax on tips” policy is a complex issue that holds different implications for various groups. Tipped employees may find themselves in an uncertain environment—those who depend on tips as a substantial portion of their income may receive some benefit, yet vulnerable low-wage earners may find themselves excluded from any fiscal support altogether.
In light of these ongoing debates, it’s paramount that tipped workers pay close attention to the evolution of tax guidelines as they arise from the IRS and Treasury Department following the bill’s enactment. The IRS’s future guidelines will serve as essential tools for workers to navigate their new tax landscapes effectively.
While the tax break might soon roll into effect, workers may benefit from consulting tax professionals or leveraging modern software to ensure they accurately reflect the newly established tax guidelines while preparing their financial future.
In conclusion, President Trump’s proposal to eliminate federal taxes on tips attempts to bridge a gap in financial inequity for certain workers. Still, the broader implications of its implementation could severely impact low-income earners, ultimately simplifying tax burdens for higher earners, while complicating the already intricate dynamics of America’s tipping culture.
Trump’s No Tax on Tips – The Rights Views
Why Trump’s ‘No Tax on Tips’ Proposal Is Resonating With Working-Class Americans
While critics have raised concerns about Donald Trump’s promise to eliminate federal taxes on tipped income, supporters say the policy is a long-overdue correction that would directly help millions of hardworking Americans—especially those in lower-income, service-based jobs.
Here’s why many on the right, and even some independents, are applauding the idea:
1. It Puts More Money Into Workers’ Pockets Immediately
Supporters argue this proposal is a rare, clear-cut example of a tax policy that overwhelmingly benefits the working class rather than the wealthy or corporate elite. Unlike complex tax reforms that take years to trickle down, eliminating taxes on tips means waiters, bartenders, hotel staff, hair stylists, and delivery drivers could immediately see more take-home pay—without needing to rely on politicians to raise the minimum wage.
“This is a tax cut aimed at the waitress, not Wall Street,” said one supporter on social media. “How often does that happen?”
2. Tips Are Earned, Not Gifts
Many believe tips are earned income based on service performance—not a handout. Taxing them, in this view, is punishing hard work. Unlike salaries, which are often guaranteed, tips vary dramatically by shift, season, and customer generosity. Removing taxes, supporters say, acknowledges the unstable nature of tipped wages and treats these workers more fairly.
3. The IRS Is Already Harsh on Tipped Workers
Supporters argue that tipped workers are already disproportionately targeted for audits and IRS scrutiny. Employers are required to report assumed tip levels even when actual tips fall below expectations. In some cases, workers get taxed on tips they never actually received. Supporters see this as a bureaucratic overreach and believe Trump’s plan would stop the IRS from unfairly squeezing people just trying to get by.
4. It’s a Morale Booster in a Tough Economy
For many in hospitality, retail, and personal services, wages have failed to keep pace with inflation. The Trump plan, according to supporters, serves as a message of appreciation to workers often overlooked by federal policy. It gives a sense that someone at the top is finally paying attention to them.
5. It’s Politically Smart—Because It’s Popular
Even if some economists raise questions about implementation, many Americans don’t care. Supporters argue that common-sense tax relief—especially for those living paycheck to paycheck—doesn’t need to be complicated to be effective. And politically, it’s a winning move: who wants to campaign on the message, “No, we should keep taxing your tips”?
In summary, while critics raise logistical and economic objections, supporters say Trump’s plan is simple: reward work, put money back into the hands of the people who actually serve Americans every day, and stop punishing them through an outdated tax structure. Whether or not the proposal makes it through Congress, it’s struck a nerve with millions of voters who feel like Washington rarely works in their favor.
About the Author
Ellen Westbrook is a Stanford University graduate with a bachelor’s degree in human resources and psychology. She’s the owner of a successful HR and payroll outsourcing firm in Colorado and a contributing writer for HR Costs. With 17 years of experience, Ellen helps businesses reduce risk, manage HR more efficiently, and grow with confidence.
