As the presidential campaign intensifies, both former President Donald Trump and Vice President Kamala Harris are vying for the support of service and hospitality workers by pledging to eliminate taxes on tips. However, experts suggest that this proposal may not benefit a significant number of tipped workers, as many of them do not earn enough to be subject to federal income taxes.
While Trump announced the idea at a rally in Las Vegas and Harris expressed her support during an event in the same city, neither candidate has provided detailed plans for implementation, as any such policy would need to pass through Congress. Key considerations include the extent to which tipped income would be exempt from taxes, measures to prevent potential fraud, and whether both federal income and payroll taxes would be waived.
Harris intends to pair her proposal with a call for Congress to raise the minimum wage. Her plan would also incorporate an income threshold and safeguards to prevent certain high-income earners, such as hedge fund managers and lawyers, from exploiting the policy. Notably, tips would still be subject to payroll taxes under this proposal.
Following Trump's announcement, Republican Senator Ted Cruz introduced the 'No Tax on Tips Act,' which would enable workers to deduct tips paid through various methods on their federal income tax returns. This legislation, endorsed by Nevada Democratic Senators Jacky Rosen and Catherine Cortez Masto, would not eliminate federal payroll taxes, which contribute to funding Social Security and Medicare.
Several bills with differing provisions have been introduced in the House, including proposals to eliminate both federal income and payroll taxes on tips or to impose a cap on the amount of tip income that could be excluded from taxes.
