Over Tipping: Congress Should Lower Taxes for Everyone
April 2, 2025 | Washington, D.C.
by Anne Schlafly, Executive Director, Eagle Forum
“No taxes on tips!” was the rallying cry and campaign promise that many believe enabled Donald Trump to win Nevada in 2024. It was so popular that his opponent Kamala Harris copied the pledge. Senators and congressmen are now rushing the bandwagon to enact “no taxes on tips.
The devil is in the details of this idea. If one select group of wage-earners can legally avoid taxes, then everyone will want to join that group. Already, restaurants have realized the inherent unfairness that the front-of-the-house employees would avoid taxes, but not the back-of-the-house employees. Tipping is usually for the public-facing service providers, such as waiters, but the invisible dishwashers and janitors whose wages are not considered “tips” would not be able to access this new tax-free benefit.
Naturally, other workers also want a tax-free income. Tipped service workers are usually W-2 employees, but the popularity of the app-based gig economy has produced a lot of tipped workers who receive 1099s, not W-2s. Should their tips be tax-free? Both Uber and DoorDash are currently lobbying Congress to get in on this gravy train for their independent contractors.
States vary widely on how they account for tips. Some states have a separate and much lower minimum wage for employees who get tips. The federal government defines a tipped employee as someone who gets more than $30 each month in tips. For example, in Missouri, the required minimum tipped wage is 50 percent of the minimum wage for non-tipped employees. But if it is a slow night in the restaurant, the employer must make up the difference so that the employee’s income can match the non-tipped minimum wage. Would employees get a tax-free benefit on all tips or only the tips above the minimum wage? That would result in quite a difference in take-home pay among the restaurant employees if some had to pay taxes on their full wages, but others only paid taxes on much less than 50 percent of their wages.
The current proposal in Congress also excludes service charges that are not voluntary tips. So, the wait staff for large parties when the gratuity is automatically added to the bill would have to remit the taxes on those earnings. Is Congress trying to make the tax policy impossibly complicated?
Another detail is the FICA withholding. Would this new law eliminate the Federal Insurance Contribution Act tax, which funds Social Security and Medicare? This 15.3 percent tax is split between the employer and employee. So far, the lawmakers have not addressed the FICA tax. If tipped employees do not pay into the system, then their future benefits could be diminished.
Tax policy should not pick winners and losers. Why should government decree that the wages of the person who serves the plate of food are tax-exempt, but not for the person who washes the dish? The best tax policy is lower taxes for everyone.
Anne Schlafly is Chairman of Eagle Forum and has served on Eagle Forum boards of directors since 2008. She is the daughter of Eagle Forum’s founder, Phyllis Schlafly.