Former President Donald Trump recently made headlines with a bold proposal: eliminating taxes on tipped wages. This move, he claims, would be one of the first actions of his administration if he were to be re-elected. The proposal specifically targets workers who earn a portion of their income from tips, such as hotel workers and restaurant employees. (source)
At a rally in Las Vegas, Trump stated, “When I get into office, we’re not going to charge taxes on tips—people making tips.” This is the first time Trump has mentioned changing tax law to benefit tipped workers, and it remains unclear exactly what policies he intends to change. He did not elaborate on the proposal at the rally, and representatives for his campaign did not immediately respond to requests for comment.
Currently, any tips to service workers that total more than $20 in a given month are subject to federal income taxes. Tips through electronic means, like credit card payments, are automatically reported to employers, and employees are also expected to total the amount of their cash tips and report them on individual income tax returns. The IRS estimates that it loses out on 45% of taxes owed on tips per year due to inaccurate reporting.
Trump’s proposal could have significant implications for service industry workers, particularly in tourism-driven cities like Las Vegas, where tens of thousands of workers rely on tips to make a living. However, it’s worth noting that this is not the first time a politician has proposed eliminating taxes on tips. Former Rep. Ron Paul, a Libertarian from Texas, introduced a similar plan in 2012.
As a tax attorney, I find this proposal intriguing. While it could potentially alleviate some financial burden for service industry workers, it also raises questions about tax fairness and revenue loss for the government. It’s a complex issue that warrants further exploration and discussion.