When my wife worked as a server, the tip reported for tax purposes was either 10% of the restaurant check or the actual tip amount. So, CC tips got fully reported, and cash tips ended up being 10% of the check.
The corollary of that is that if you don’t tip, the server was going to get taxed on money they didn’t get. I don’t know how tipping out to the busboys and bartenders worked.
If this change happens (it won’t), you’ll see hedge fund managers getting their bonus money as a tip – it’s not known or agreed to in advance and it’s up to the board to allocate it. Just like bribes to politicians and justices are now tips.
As was said, “tips” are generally considered optional. You can choose to give nothing, or just a pittance. “I shovel snow for tips”, and how long does that last when half the people stiff you? And even if they do “tip”, they’ll justify short-changing you because you “Don’t have to pay taxes any more!”
Wage theft is already a huge issue in the US. This plan will just make it easier.
The issue being glossed over here is, while tips are optional, they are still income. Listening to an interview on NPR this morning, it was rightly pointed out that if tips aren’t taxed, the government will lose out on revenues. Whether accurate or not I can’t say, but the economist being interviewed estimated tax losses of $100 billion over 10 years.
If the goal is to reduce the tax burden on low-income earners, why not just adjust the basic deduction to your taxable income? Helps the people who need it the most, in the most direct way possible, while eliminating all these possible shenanigans.
I don’t think there’s a goal here – Trump said something that he thought would appeal to whoever he was speaking to, and then Harris just matched what he said.
Seriously, though, if this happened, you know that any bonus payments to billionaire hedge fund managers would be tips.
Tipping culture is effectively impossible to tax, anyway. Electronic payments make it easier, but do we seriously believe that people are all reporting their cash tips as income accurately rather than treating it as a windfall?
The only way to eliminate taxing tips altogether is to eliminate their role as part of the income stream and make them optional gifts, which means (1) ensuring that people are paid sufficiently without them, and (2) making them truly optional. Neither one seems likely to happen. The only way to tax them effectively is to record them effectively, which also seems unlikely to happen.
I can’t think of a good reason to stop taxing tips other than the recognition of the status quo, that we’re not really taxing them now. I can think of some nefarious reasons on the conservative side (the wing that wants no floor on wages).
Yeah, there would definitely be a push to make all the traditionally tipped jobs like waiters into “tip only” incomes, “Because that way, you save on your taxes”. The fact that this also reduces the employer’s costs will be carefully ignored.
One data point: Tips to employees by their employer’s customers have been tax free in Germany since 2002, and there seems not to be a significant amount of tax fraud. (Tips to self-employed people by their customers are taxable).
Difference to the US: tipped jobs are not exempt from minimum wage.
Are there jobs in Germany that rely significantly on tips?
For example, if someone delivers and installs some appliance or something in my house, I’ll usually give them a $20 tip, or $10-$20 per person if there are several workers, but those tips are never reported anywhere and those jobs don’t include tipping as an expected part of the income.
But, waiters and bartenders (and, by extension, busboys) rely on tips for most of their income.
Not so much rely, as being more attractive. I am acquainted with a pediatric surgeon; when he was more than halfway up the career ladder in the hospital (Oberarzt) he met his now husband who was a full time server in an upscale pizzeria. Between wages and tips the server earned more than the surgeon (according to the latter).
This is a rather old article, so I am not sure if it reflects current practice, but companies have or had been putting a tip button on self-service kiosks. If tips become non-taxable, the companies who are/were doing this might attempt to claim any revenue they get from this as non-taxable, even though it probably does not go to an employee.
I have always been reluctant to put a tip on a credit card slip because if I am tipping, I want the money to go to the server, and the employer seems hard to trust on that count.
That I can agree with, but for the law of uninteded consequences. Raising prices/eliminating staff to cover for it is at least of some concern. That could make a difference in my choice whether to eat out or not, if the prices rise too high, or there’s not enough staff to give reasonable service. Then it all snowballs.
I have quietly asked sone servers if they prefer cash or a tip on the card. If I’m in a place that doesn’t have an automatic gratuity they almost always prefer cash.
Does it even really matter? With the standard deduction, most restaurant workers don’t make enough money to pay income tax in the first place. Yeah, there are a few fine dining folks making bank (in relative terms), but, say, a Chile’s server?
37 percent of tipped workers in 2022 (as measured in the 2023 CPS ASEC) were in tax units that paid zero federal individual income tax before credits. The Budget Lab included dependents in tipped occupations with positive earnings in this analysis. Note that even when federal income tax liability is zero, tipped workers and their employers pay federal payroll taxes (e.g. FICA taxes).
Interestingly, in Chicago (where I live) we have pedicabs. I do not know if they all work this way but the few I have used have never quoted a price. I can pay them whatever I think is appropriate at the end of the ride. Which I assume means no money is ok (yeah, that would be a shitty thing to do but, presumably legal). Not sure how that works with the IRS.
