This whole thing is a solution in search of a problem. Let’s say you have Worker A making $30,000 in straight salary and Worker B making $20,000 in salary and $10,000 in tips. Why is it so god-awful important that Worker B pays less tax than Worker A? A low wage worker already pays very little tax whether the money comes in a paycheck or in tips. That’s how it should be. Excluding tips from taxation is a terrible idea. You know that the ones making the final laws are going to craft it so that there are provisions in it to redefine what a tip is so that the fat cats pay less tax.
You don’t even need to do that. It’s a well-established practice in the restaurant industry to automatically include a gratuity under certain circumstances, such as large parties.
So just do that with every contract. Sign a billion-dollar contract that has a clause, “Any contracts over 100 million will include an automatic 10% gratuity for our hard-working senior executives.” Just becomes another cost of doing business, and they’ll all go along with it, because they’ll all be making tax-free “tips”.
Exactly. Where I used to work, we had a bonus program for senior leaders, of which I was one for the last decade of my career. You earned part or all of the possible bonus money based on both your personal and the company’s performance. Since a ‘tip’ is presumably earned by how well one does one’s job, that bonus program could easily be classified as a tip and thus be tax-exempt.
Good strawman.
Except that it is rarely like that. Generally it is worker B with $10K in salary and $10K in tips.
What are you talking about? Do the cooks make more than the wait staff? In total?
In general, yes. But of course it all depends.
OK, so it’s $10K in salary and $10K in tips. In 2023, the standard deduction for a single person is $13,850. This leaves $6150 in taxable income and a federal tax of $613. Eliminating tax on tips would reduce the tax liability to zero. But that still leaves the same question- why should a person earning a straight $20k in income pay that $613 but the person who’s income is half tips not? Are they not equally in the low income range?
There have even been self-services kiosk things asking if you would like to leave a tip. Remove tip taxation and it becomes give us free money, especially if you expect to use our kiosk efficiently next time.
But it isnt straight $20K ve 20k (including tips) it is more like $30 or 40 k vs 10 or 20k + tips.
Tipped employees just earn less.
Mind you, like I said, my better idea is just to make it so minimum wage is not reduced for tipped employees, which I honestly think is what Harris will settle for.
I don’t think we disagree too much. Yes I want to raise minimum wage for tipped employees to the same level as untipped ones. I’m all for lowering the taxes for the lowest paid, but I’d prefer to do it by raising the standard deduction to match the poverty level income. That would require higher earners to pay more but I don’t like taxing people who don’t make say $20k at all.
I think we pretty much are on the same page here.
Maybe on average, but there’s someone out there who is only making 20K/year, working part time somewhere. So the point stands, why does that person pay more than the tipped person under this plan?
I don’t have a dog in this fight, but yeah, one solution would be:
- Abolish tipping
- Pay fair, livable wages (charge realistic prices if necessary to support this without making a loss)
- Set a reasonable tax-free allowance on income
“But then servers will be lazy because they know they’ll get paid either way!”
Yeah, absolutely heard that one more than once.
That sounds like another way to say ‘I’m a terrible manager with no idea how to motivate people’
I’ve been trying and trying and can’t figure out where you are getting that from Most tipped people I’ve known make more in tips than in cash wages - and that’s even with a high minimum wage for tipped workers in my city. But even if you assume a food server earns only half of their pay via tips- why should a waitress who earns 2X ( X in cash wages , X in tips) be taxed differently than someone else who earns 2X in a non-tipped occupation ?
If every server got cash wages of $2.13 /hr and every server was low income, maybe I could agree with not taxing tips. But that’s not true - some states/cities either don’t have a lower minimum for tipped workers or have one higher than $2.13 ( In NY it’s at least $10 cash wages for food service, and at least $12.50 cash for other hospitality workers). Some tipped workers are not low-income - most are not making six figures, but some do, and most are probably making something in between.
Actually, I hear that from customers, not the managers. There have been a few restaurants I’ve known of where management tried to eliminate tipping and it seems like the customers and servers generally want tipping to continue, for a variety of reasons.
That’s from customers, not managers. Some people really just do want the power trip of fucking over someone they don’t like, and tipped employees are an easy target.
Here’s an idea. How about giving everyone the same minimum-wage protection and not slave-wages for servers. Now the solution for the OP is you don’t have to declare your tips as income on your 1040 OR it’s in a separate box and not counted in your AGI.
Fair point. I guess it’s not just the taxation question then, it’s also a kind of toxic culture.