'No Tax on Tips' Proposal Meets Limits of Reality [View all]

Source: Bloomberg

As a slogan, it’s hard to beat “no tax on tips.” When a waitress uttered those four words to President Donald Trump last year, he said he instantly replied: “You just won the election for me.” The phrase, along with “no tax on overtime,” soon became key parts of his campaign’s pitch to working-class voters.

Now the trick is turning slogans into tax legislation. When Republican lawmakers this week released their first, 389-page draft of a bill that could take months to become law, there they were on pages 23 and 32, respectively: sections titled “No Tax on Tips” and “No Tax on Overtime.” And each made instantly clear that American workers are still going to pay plenty of taxes on their tips and overtime.

Early versions of the proposals were vague—for example, suggesting that anyone including investment bankers and lawyers might start earning income in gratuities as a way to reduce their tax burden. That was never likely, and indeed the legislation limits tax-free tips to occupations that “traditionally and customarily” receive them. (The Treasury secretary will need to come up with a list.) Also barred from both breaks are employees designated as “highly compensated,” an income threshold of $160,000 or more in 2025.

Another big limit: The federal government collected $1.7 trillion in payroll taxes and $2.4 trillion in individual income taxes in the 2024 fiscal year. Working-class Americans pay far more into the first category than the second, yet the proposed carve-outs for tips and overtime apply to only income taxes, not payroll taxes. That makes the tax breaks far less lucrative, while rendering them useless for those who pay no income taxes at all—including, according to the Budget Lab at Yale, 37% of tipped workers.

Read more: https://www.bloomberg.com/news/newsletters/2025-05-15/-no-tax-on-tips-has-limits-in-republican-tax-bill

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No surprise that the same man who promised a big beautiful wall (lie) and said Mexico would pay for it (lie), promised no tax on tips (see the pattern)?