Mark Schiefelbein/AP Photo
Attendees listen as President Donald Trump speaks about the economy during an event at the Circa Resort and Casino in Las Vegas, January 25, 2025.
Lawmakers passed two measures to eliminate federal taxes on tips this week, a move proponents say will especially benefit the restaurant workers who make nearly half their overall salary from tips.
But even those who support the idea called it a cynical half measure that allows lawmakers to score points without alienating corporate interests through more meaningful policies. They also warned that the massive cuts to Medicaid in the Republicans’ spending bill will dwarf any benefit workers see from the tax exemption. The budget reconciliation bill, which passed the House early Thursday morning, would kick 10.3 million people off Medicaid and leave 7.6 million without insurance, the Congressional Budget Office said. An analysis by One Fair Wage estimated that tipped and other restaurant workers will account for 1.2 million of those individuals within the next decade.
“Look, it is criminal what this big horrible bill is doing,” said Ted Pappageorge, secretary-treasurer of Culinary Workers Union Local 226 in Nevada, home to the highest concentration of tipped workers. The union supports removing federal taxes on tips, he said, but warned that Republicans’ massive cuts will overwhelm the benefit.
“Trillions of dollars of tax cuts for the super-rich while millions of folks lose health care—no taxes on tips is not gonna fix that,” Pappageorge said.
Restaurant workers are more than twice as likely to have incomes under the poverty line.
Senators unanimously passed the bipartisan No Tax on Tips Act on Tuesday. The legislation, introduced by Sen. Ted Cruz (R-TX) in January, now goes to the House for consideration. If approved, it would amend the Internal Revenue Code to allow workers to claim a 100 percent tax deduction for tips totaling up to $25,000 each year.
The exemption would apply only for workers who made less than $160,000 during the 2024-2025 tax year and would only cover tips workers customarily received on or before the end of December 31—tips for food services, taxis, or manicures, for example. The bill directs the Treasury secretary to publish a list of eligible occupations within 90 days of its enactment. Economists and labor rights experts said that’s an important detail because it will discourage workers in other industries from reclassifying their compensation as “tips” in order to evade income tax.
There is a similar provision in the House Republicans’ spending package. But unlike the Senate version, it puts the benefit out of reach for undocumented immigrants, a crucial difference given that there are about one million undocumented workers in the food services industry alone. Under the House version, only people with a Social Security number could claim the deduction. For workers who are married, their spouse would also be required to have a Social Security number, even if the spouse isn’t claiming a tip deduction. Another difference: The House bill makes the benefit temporary—deductions for tips would stop at the end of 2028.
The spending bill now goes to the Senate, where lawmakers will likely heavily edit the bill. Researchers said that a likely scenario is that senators replace the House version of the tips provision with their own, among the other changes they make to the bill overall. The final language will be hashed out in conference, and it is uncertain what the final policy will look like.
The no tax on tip legislation comes after President Trump first proposed it during the 2024 campaign in an attempt to appeal to service workers in battleground states like Nevada. The Harris campaign quickly followed suit.
Restaurant workers are some of the most economically disadvantaged workers in the country, data shows. They’re more than twice as likely to have incomes under the poverty line than other workers, and use SNAP, the country’s food stamp program, at double the rate of the general population. (Republicans are also poised to cut $300 billion from SNAP, another provision of the House Republican spending bill.)
They’re also some of the least politically involved groups in the country, said Saru Jayaraman, the president of advocacy group One Fair Wage. Jayaraman argues that some of that political disengagement comes from a feeling of abandonment by both parties and years of unlivable wages.
Restaurant workers are “ignored and abandoned by Democrats,” said Jayaraman. “Just not at all talked to, spoken to, elevated. And then this guy comes along and he says ‘no tax on tips’ … So it’s not that it’s the panacea, but the workers felt that at least this guy was recognizing them as an important population to care about, to even pander to.”
Yolanda Garcia, who works food and beverage at the Resorts World Las Vegas casino, said she’s felt abandoned by Trump, who promised to help workers and hasn’t followed through.
“Trump has forgotten about us—the middle class,’ she said.
Garcia welcomed the idea of paying no taxes on tips and said the extra money would help with her day-to-day life, including caring for her two daughters amid rising costs. That would be especially helpful during periods when her overall take-home drops because tourists aren’t coming to town or even because they decide to stay in on a rainy day. Tips are notoriously volatile as a source of income, workers and economists said, which makes it difficult to plan.
Garcia, who has been a member of Local 226 for about a decade, said she’s noticed a drop in her overall pay as prices have skyrocketed and fewer people are traveling. “Right now—it’s really bad tips,” she said.
She cautioned, though, that while tax-exempt tips would be helpful to her, not all workers are in the same position as she and her fellow union members. Nevada requires employers to pay tipped workers the state’s hourly minimum wage of $12 before tips. But more than a dozen states use the federal minimum wage for tipped workers of just $2.13, and more than half of all states pay less than $10 an hour.
“You cannot live on that,” Garcia said of the federal minimum, “and … tips are never guaranteed.”
Exempting tips from taxes also benefits just a small group of people overall, even among restaurant employees, said Restaurant Workers United President Elyanna Calle, who works as a server and bartender. Tips don’t typically extend to back-of-house workers, she said (echoing the judgments of industry experts), nor to those at fast-food chains, though all are in the same industry.
The provision fails to address service workers’ overall needs, including paid time off and adequate health insurance, she added. A better approach would be to require companies to pay livable wages and provide benefits, rather than forcing workers to rely on customers.
“It’s a lack of desire to hold companies accountable. It’s easier to have this shiny new idea of ‘no taxes on tips,’” Calle said. “It’s really unfortunate to see people not realizing—or maybe people don’t know—that [no tax on tips] would only affect half of restaurant workers. I think we really need to change our focus on tipping culture and focus on raising the minimum wage, because tipping culture is rooted in racism and problematic behavior. It’s unreliable, so even if you’re not getting taxes on tips, and it’s a slow day at work, you’re still not making a livable wage.”
Jayaraman of One Fair Wage agrees that the best solution would be to give restaurant workers a full minimum wage. That would eliminate much of the volatility experienced by workers who rely on busy nights and high tippers just to make ends meet.
An across-the-board full minimum wage would also give workers the flexibility to take paid sick leave without sacrificing their pay, Jayaraman explained. “Even if your jurisdiction requires your employer to provide paid sick leave, which is not most jurisdictions in the U.S. … because you live on tips, you have the need to go to work, even if you’re sick.” Otherwise, your pay for the day could hover around that $2.13-per-hour subminimum wage.
No tax on tips fails to address service workers’ overall needs, including paid time off and adequate health insurance.
Some restaurant workers were able to get Medicaid coverage during the pandemic, when the program expanded to help insure more workers. But that COVID-era expansion is ending, which experts estimate will take benefits away from anywhere between 8 and 24 million people across industries, on top of the millions who will be kicked off Medicaid thanks to Republicans’ cuts to the program.
The rollback of the COVID-era expansion, coupled with Republicans’ Medicaid cuts, will make those sick day calculations even more difficult. “People have to understand that this means people will not be able to take care of themselves or their children, they’ll go to work even more sick than they have been going, which is already pretty awful. That’s a public-health disaster for everybody who eats out,” Jayaraman said.
Even though he expects he’d benefit from untaxed tips, Andy Parkinson, a bartender at a high-end restaurant in Manhattan, said a living base wage and health care are bigger priorities.
“I’m personally not too enthused about the no tax on tips thing. To me it’s a red herring,” said Parkinson, who is also an organizer with the Emergency Workplace Organizing Committee. “I’d rather pay taxes and have medical care and for my co-workers to have medical care.”
Like Calle, he objects to the practice of tipping overall and is wary of measures that further cement it as part of everyday life—in part because it “builds resentment between consumers and tipped workers further and further,” he said.
“I could foresee, especially in more conservative areas, where some worker at Applebee’s is getting no tips, or less tips, because some consumer who watches Fox News all day has calculated in their head, ‘Oh, they’re getting a tax break.’ It furthers the idea that ‘Oh, these are freeloaders and they’re taking my money,’” he said.
Many economists say that no taxes on tips is an ineffective policy because of the way it’s structured and the number of people it would benefit. Tipped workers account for only about 2.5 percent of workers, said Ernie Tedeschi, director of economics at the Budget Lab at Yale University, and more than a third of them already pay nothing in federal income taxes because they do not earn enough. That makes a deduction on tips meaningless for that group of people, because “if you already owe nothing,” he said, this measure “just makes it even more zero than it was before.”
Tedeschi cautioned that a buzzworthy bill that provides little benefit stands to do harm in the long run. The restaurant industry “loves the idea of no tax on tips,” he said, because it will likely lead to more workers wanting tipped restaurant jobs, which gives employers leverage to pay workers less. The restaurant industry also likes that the measure shifts the economic responsibility of paying workers to the customer, which gives bosses more support to lower wages, he said.
“It’s not a slam dunk for the restaurant worker,” Tedeschi said. “They’re going to see this tax benefit, but then over time, they’re going to see less in wage payments from their employers.”
Workers are likely to see customer behavior change, too, he said. Customers already frustrated by tablet payment screens that automatically select a high tip or by the expectation to tip when there’s no table service may further resent knowing that tips are tax-free.
“If you want a relatively low-cost way to have a high-profile policy for a very narrow set of low-wage workers, then, yeah, no tax on tips makes sense,” Tedeschi said. “But if you actually want to improve the lives of a great deal of people, you need to actually invest resources and broaden it.”
One way, he said, would be to raise the federal minimum wage, which hasn’t been raised in the past 16 years, and raise the tipped minimum wage, too. “That would have been my preferred strategy,” said David Cooper, director of the Economic Analysis and Research Network coordinated by the Economic Policy Institute. He described the No Tax on Tips bill as “bad policy for a lot of reasons.”
“If you’re really trying to improve their standard of living, a better approach would be to solidify their base wage,” he said. He noted that workers already earning the least are the ones most likely to be on Medicaid. So, while they make too little to pay income taxes and therefore benefit from the tax exemption, they would be significantly harmed by Republicans’ cuts to that program.
“One emergency room visit can easily set you back $10,000,” he said. “A tax benefit from no income tax on tips is going to be, at most, a couple thousand dollars—if they have any tax liability at all. This is in no way an even trade-off. This is unambiguously going to hurt any tipped worker that is on Medicaid.”
The ones who benefit the most are the ones who make the most tips, Cooper said, a poor way to structure meaningful tax policy.
“It’s hard to view it,” he said, “as anything other than a political maneuver.”
