The House Republican Tax includes a “no tax on tips” proposal. How many workers benefit?
Budget battle showing the cracks of the GOP
Republicans are split into bills and argue that cuts to popular social programs could affect voters’ opinions and their slim majority in the House.
House Republicans recently announced a drastic tax plan that includes key promises from President Donald Trump’s campaign trail. There is no tax on tips.
Pauling suggests that it is a popular idea across the party’s line, and Trump believes in the idea to support his 2024 election victory. However, critics argue that taxes on hints are costly, unfair tax cuts that benefit a small number of low-income Americans.
“A relatively small number of workers will see significant tax savings from this proposal,” said Joseph Rosenberg, a senior fellow at the left-leaning Urban Blues’ Tax Policy Center.
Here’s what we know so far about the latest suggestions.
Who qualifies without tax on tips?
The bill will create temporary tax credits throughout 2028 for employees and independent contractors of occupations “traditionally and customarily received,” perhaps a server. If the bill passes, those occupations will be emitted by the Treasury Secretary.
Highly compensated workers who earn at least $160,000 in 2025 are not eligible.
How much can a worker who is turned over without taxes as a hint?
Some tax policy experts criticize the idea because of its limited scope.
Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a think tank on the center right, said it would be an unfair policy. For example, why do restaurant tip servers have access to more tax cuts than clothing chefs working in the kitchen?
“For Nevada workers, it’s good news that there are a lot of leaning workers,” Pomerlot said. “But you are isolating one segment of the population.”
Even leading workers may find themselves not qualifying for tax credits.
The proposed tax cuts apply only to income taxes, not payroll tax. That is, an estimated 37% of the country that didn’t make enough money to face federal income taxes in 2022 will not benefit from this proposal, following estimates from the Yale Budget Lab.
“And they’ll do little to do to workers, even receiving hints from the central region due to low income distribution,” Rosenberg said.
Last year, the Tax Policy Center found that the Tip Termination Tax benefits approximately 2% of all households, or approximately 2% of 60% of workers. The average tax cut is around $1,800 a year. Rosenberg said the analysis has not been updated since the tax system was announced on May 12, but he expects the figures to be similar.
Another 2024 analysis from Yale Budget Lab yields similar results, with an estimated 4 million sloping workers (2.5% of the workforce) not benefiting from taxes on tips. The average tax cut for profitable families is around $1,700, but under the fifth earner, you can save $200.
How much does it cost to not introduce taxes as a tip?
Overall, the TIP provisions are estimated to cost around $40 billion over four years, according to the Joint Tax Commission. This is a small percentage of the tax bill, estimated to add around $4 trillion to the deficit, according to Alex Muresianu, senior policy analyst at the Tax Foundation, a central tax think tank, but it’s still a notable figure.
“If you’re trying to drill holes in your tax base for no reason, then that hole would be the size of a VW bug instead of a semi-truck,” he told USA Today. “But at the end of the day you’re still driving a hole in the tax base.”
Meanwhile, the entire GOP tax bill could potentially lose hundreds of dollars in after-tax income by reducing spending on Medicaid and Supplementary Nutrition Assistance Programs, previously known as food stamps, according to a new analysis of Penn Wharton’s budget model.
According to an analysis first reported by the New York Times, the top 0.1% of earners average $389,280, average $389,280, while Americans who lose an average $705 lose an average $705. People with incomes under $17,000 lose more than $1,000 on average, and their losses get worse over time.
If the tax credits leaner employers and workers deeper, Americans could be squeezed even further.
The latest proposals include guardrails that limit the ability to restructure wages, but “certainly, in leading-edge industries, there are tax incentives that shift income to tax-free tips instead of taxable wages,” Rosenberg said.
What happens next?
It is not yet clear what the final tax bill will look like. A hard-hit Republican who wanted deeper spending cuts on Medicaid and abolition of green energy tax cuts stumbled the action Friday despite Trump asking Republicans to “stratify” social media posting laws.
According to Reuters, the vote is likely a temporary set-off, but could delay Full House’s voting plan.
