Some parts of the U.S. restaurant industry are opposing President Donald Trump’s plan to eliminate federal taxes on tips. Critics argue that the proposal would only benefit a small group and divert attention from larger issues surrounding the payment of tipped workers. The Independent Restaurant Coalition, representing close to 100,000 restaurants and bars, has urged Congress to reconsider the proposal included in the president’s spending bill. Even some tip-dependent workers voice their disapproval of making tips tax-deductible.
Elyanna Calle, a bartender in Austin, Texas, and president of the Restaurant Workers United union, highlighted concerns about the impact on non-tipped kitchen workers: “I think there’s a huge hole in this concept of ‘no tax on tips’ because a lot of restaurant workers aren’t receiving tips in the first place. It’s not helping most kitchen workers, and oftentimes those are the people who are being paid the least.”
The concept of tax-free tips seems to have broad support among lawmakers, with both Trump and his former Democratic rival, Vice President Kamala Harris, advocating for it during the election campaign. The House has approved the measure in a tax cuts package, and the Senate Finance Committee has passed a modified version, with deductions capped at $25,000 and phased out for higher earners. The eligibility criteria are tied to income levels as of December 31, 2024, and both versions would be applicable until the 2028 tax year. The Finance Committee clarified that “cash tips” encompass tips paid in cash, via credit cards, or through tip-sharing arrangements.
While the National Restaurant Association, representing nearly 500,000 restaurants and bars, supports the tax-free tips proposal, critics argue that it excludes many of the industry’s 12 million workers, such as dishwashers and chefs. The Independent Restaurant Coalition is pushing for the elimination of taxes on service charges, which are becoming more common in restaurants as a method to compensate employees. Around 15% of U.S. restaurants currently include some form of service charge on customers’ bills.
Skandalos, the owner of Maialina restaurant, has implemented a gratuity-free policy. Instead, a 20% service fee is added to each order, which is then distributed among all employees to cover benefits such as paid vacation and parental leave. Despite initial confusion, most customers appreciate this new approach. Skandalos believes that exempting service charges from taxes would further support the goal of fair pay distribution.
On the other hand, Ted Pappageorge, from the Culinary Workers Union Local 226 in Las Vegas, believes that restaurants should increase base pay for kitchen workers rather than relying on tips. He sees the “no tax on tips” initiative as a bipartisan opportunity to benefit working-class individuals. Pappageorge supports a bill introduced by Nevada Democrat Steven Horsford, which aims to eliminate taxes on tips while ensuring that restaurants pay workers at least the federal minimum wage.
Yolanda Garcia, a barista at Resorts World in Las Vegas and a union member, also backs Horsford’s bill. She relies on tips as a significant portion of her income and believes that tax-free tips would help alleviate financial uncertainties, especially with rising costs of living. Similarly, Calle, a bartender and union leader in Austin, acknowledges the benefits of tips but highlights the inconsistency and the underlying issue of low base pay.
Both Garcia and Calle agree that the emphasis should be on fair wages and not solely on tipping, as this could lead to companies avoiding wage increases. They advocate for policies that support fair compensation and stability for workers in the service industry.
