Some parts of the U.S. restaurant industry are opposed to President Donald Trump’s plan to remove federal taxes on tips, arguing that it would only benefit a few individuals and divert attention from more significant issues in the payment structure for tipped workers. The Independent Restaurant Coalition, representing close to 100,000 restaurants and bars, has urged Congress to reconsider this proposal included in the president’s budget. Even some tip-dependent workers are against the idea of making tips tax-exempt.
Elyanna Calle, a bartender in Austin, Texas, and president of the Restaurant Workers United union, pointed out that not all restaurant employees receive tips, particularly kitchen staff who are often paid the least. Despite concerns from some industry groups, the notion of tax-free tips has garnered support from lawmakers, including Trump and former Vice President Kamala Harris.
Both the House and the Senate Finance Committee have put forth versions of the bill, with the Senate proposing caps and phasing out for higher-income earners. The House version extends tax-free tips until the 2028 tax year, with the Senate committee specifying that “cash tips” are eligible for exemption.
While the National Restaurant Association, representing around 500,000 U.S. restaurants and bars, supports the tax-free tips initiative, the Independent Restaurant Coalition argues that the proposal overlooks many workers in the industry, such as dishwashers and chefs. They are advocating for the removal of taxes on service charges, which are increasingly used for employee compensation in restaurants. About 15% of U.S. restaurants currently apply some form of service charge to customer bills.
Restaurant owner George Skandalos in Moscow, Idaho, has been exploring different compensation models to address disparities in income distribution among staff. He faced challenges when attempting to pool servers’ tips and distribute them, leading him to consider alternative approaches to fair compensation.
Skandalos has implemented a no-tipping policy at his restaurant, Maialina, opting instead for a 20% service fee that is shared among all employees to cover benefits such as paid time off and parental leave. Despite initial confusion from customers, the majority now appreciate the initiative. Skandalos believes that the current tax laws do not sufficiently support restaurants that strive for fairer compensation distribution and advocates for service charges to be exempt from taxes.
Meanwhile, Ted Pappageorge of the Culinary Workers Union Local 226 in Las Vegas suggests that restaurants should raise kitchen workers’ wages to offset servers’ reliance on tips. He sees the “no tax on tips” proposal as a bipartisan opportunity to benefit the working class. Pappageorge supports a bill introduced by Nevada Democrat Steven Horsford, which not only eliminates taxes on tips but also mandates that restaurants pay their employees at least the federal minimum wage.
Yolanda Garcia, a barista at Resorts World in Las Vegas, and member of the Culinary Workers Union, echoes support for Horsford’s bill. Garcia relies on tips to supplement her income, and tax-free tips would help address the financial uncertainty. Similarly, Calle, a bartender and union leader in Austin, acknowledges the inconsistency of tips and believes that a tax-free provision may lead to a decline in tipping as customers may resent the policy. Calle emphasizes the need to address the low base pay in the industry to ensure fair compensation for workers.
