Candidates push to make tips tax-free

HARLINGEN, Texas (ValleyCentral) — Former President Donald Trump and Vice President Kamala Harris have proposed the idea of making tips for waitstaff, service and hospitality workers tax-free.

Trump introduced the proposal at a campaign stop in Nevada, in June. Harris offered her support for the idea at a Las Vegas rally in August.

After Trump announced the No Taxes on Tips policy, Senator Ted Cruz and others in Congress filed the No Tax On Tips Act. Which is a revision to the Internal Revenue Code.

Kelsey Streufert, Chief Public Affairs Officer for the Texas Restaurant Association said at this point these are concepts more than finalized policy ideas. Streufert said the legislation Cruz introduced at least gives stakeholders some idea of what to expect. “So at least we have one sort of example on the table. Regardless of who wins the White House, I’m sure that they will want to put their own stamp on it. So this is by no means sort of the final version.”

The wording in the No Tax On Tips Act is very narrow. It wouldn't affect other tax liabilities for possibly affected workers. “You would still have employees reporting their tips. And you would still have FICA being taken out of their tips", Streufert said. "And that’s really important because that ensures employees qualify for Medicare, for Social Security. That they essentially realize the full value of their income.”

Fred Uribe, Co-Owner of the Harlingen restaurant Don Gollito, said he supports the idea. Especially with the rising prices of goods and services over the past few years. “Right now, with the economy being so high, the food, the gas, utilities. I think that the waitstaff being tax-free from the tips will be a good thing for them”, Uribe said.

Some economic experts have said the policy might sound good at first glance. But they see real problems with it. The Budget Lab at Yale University estimated that tipped workers only accounted for about two and a half percent of all employees.

Streufert said that might not sound like a lot of people, but the TRA estimates it could help upward of two million restaurant workers nationally. “A real population. A real demographic of hard-working Americans who we think could use a little bit more money in their pocket.”

The Budget Lab findings also found many tipped workers already don't earn enough to pay taxes at all. Servers tend to get paid an hourly rate far below minimum wage. Even with tips, they may not face any federal tax liability. “Our pay is still $2.50 to $3.50 for my employees right now", Uribe said, "In the long run, if they stay with me longer, they get a little raise.”

Neither presidential campaign has released any detailed plans at this point about their no tax on tips policies. Many of the Trump tax cuts passed in 2017 are set to expire next year. Advocacy groups are pushing for lawmakers to rework much of the tax code before that happens.