Reality of Trump’s ‘No Tax on Tips’ Promise Revealed

The Senate has approved President Donald Trump‘s ambitious tax reform, known as the “One Big, Beautiful Bill Act.” This legislation includes a groundbreaking initiative that allows tipped workers to deduct their earnings from their taxable income. This development aims to streamline tax obligations for millions of employees in the service industry. However, there is one major catch within the fine print of the legislation.

Tax on Tips

With that deduction, workers in professions such as bartending, serving and hairdressing could potentially see a significant uptick in their take-home pay. An estimated annual increase of about $1,675 has been projected, according to estimates from the White House’s Council of Economic Advisers.

“It’s for the 1.8 million restaurant servers who rely on tips to pay their bills. For them, not getting taxed on that income is a big deal,” stated Joseph Camberato, CEO of National Business Capital. “This policy targets the right group and gives them a meaningful raise, basically overnight.”

However, the proposed deduction is capped at $25,000, and it phases out for individuals earning more than $150,000 or couples earning more than $300,000. Critics caution that the benefit could disproportionately favor higher earners, as many tipped workers earn too little to owe federal income tax in the first place.

‘Largest Tax Cut in History’

Abir Mandal, Senior Policy Analyst at the Tax Foundation, expressed her concerns: “The trend of tax exemptions on tips, overtime, and bonuses may sound like a win for workers, but it is a shortsighted fix with long-term drawbacks.” She highlighted the potential inequities introduced by the legislation, explicitly noting that workers vying for similar incomes across different sectors could face significantly differing tax obligations.

The Trump Administration remains steadfast in its conviction that this plan aligns with the president’s campaign trail promise of tax cuts for the working and middle class. The White House recently announced via social media that the “One Big, Beautiful Bill” delivers the “largest tax cut in history for middle and working-class Americans.”

Millions of workers may feel the impact as lawmakers argue that the revised tax scheme offers immediate financial benefits at a time when inflation is pressing families hard.

Medicare and Social Security

Once the bill is enacted, the deduction will be applicable for tax years stretching from 2025 through 2028. This timeline provides an opportunity for tipping workers to anticipate this transformative change, but the phase-out mechanisms remain a concern for those on the economic margins.

In addition to these considerations, the bill does not eliminate payroll taxes for Medicare and Social Security, nor does it alter state or local tax obligations.

Critics highlight the fact that many workers in tipped professions are not currently capturing the benefits afforded by tax deductions; research from the Yale Budget Lab reveals that only about 4% of workers earning less than $25 an hour benefit from tips.

Economic Fluctuations

As supporters and skeptics of the new tax initiative prepare for its potential rollout, the stakes could not be higher for an industry heavily impacted by economic fluctuations. Camberato emphasizes the necessity of tax reform for uplifting service professionals.

“This could put real money back into the pockets of restaurant servers and others in the service industry, and that money gets spent, which helps the economy,” he said.

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