Trump’s “No Tax on Tips” Law: A Closer Look
There’s a saying about Las Vegas—what happens there, stays there. But when it comes to Donald Trump’s plan for a “no tax on tips,” the implications might reach far beyond the glitzy city itself.
On the 2024 campaign trail, Trump promised a “tax-free on tips” initiative, a bold claim he tied to his recent legislation, known as the One Big Beautiful Bill (OBBBA). While he made these promises in a key area for the hospitality sector, many in Las Vegas are finding that the law, set to take effect for the 2026 tax season, isn’t living up to expectations. In fact, the promise feels somewhat unfulfilled amidst the ongoing tourism fluctuations affecting their tips.
It’s somewhat reminiscent of his “no tax on overtime” pledge. Though the idea of eliminating taxes on tips might sound appealing on paper, it’s not as generous in reality. The law has stringent qualifications that affect around 4 million workers across the country, leaving many confused about how it will actually impact them.
Debra Jeffries from the Local Server and Cooking Workers Union put it bluntly during an interview, calling the situation a “huge shift from a pretty catchy campaign slogan.” Meanwhile, Ted Pappgourge from the Culinary Workers Union described it as a “slap in the face” to workers. Francine Lipman, a law professor at the University of Nevada, expressed concerns too, suggesting that the law could be misleading since deductions for tips have been a common practice.
The “No Tax on Tips” Act seeks to offer a tax deduction of up to $25,000 for tips received, but it excludes automatic gratuities added to bills. Only workers from specific industries—like restaurant and hotel staff, as well as certain service providers—qualify for this deduction. Yet, these tips are still subject to Social Security and Medicare taxes. Additionally, the law phases out for individuals earning over $150,000 or couples making over $300,000 a year.
Interestingly, statistics from the Yale Budget Lab reveal that as of 2023, 37% of tipped workers earn so little that they end up not paying income tax, meaning they won’t benefit from such laws. The Tax Policy Center has also noted that only about 60% of affected households will gain anything significant, with an average tax deduction falling around $1,800. For those earning below $33,000, the savings might be as slight as $450 or even just $10.
Specifically within the restaurant sector, a nonprofit group advocating for fair wages points out that many workers, who often earn below the federal income tax threshold, will see little benefit from the new law. Endorsements have come from organizations like the National Restaurant Association, although some advocates see the law as inadequate to meet the pressing needs of workers. There are concerns that employers might use this law as justification to lower wages for tipped positions.
If workers settle for a certain salary based on this new framework, wages could potentially decrease, according to Heidi Cielholz from the Institute for Economic Policy. The overall takeaway appears more grim than uplifting.
Moreover, implementation of the “No Tax on Tips” plan may inadvertently affect government assistance programs like Medicaid and SNAP benefits, making the situation even more complicated for those trying to get by. For instance, a single mother or a teenage hairdresser earning just about $10,000 a year from tips may find that the tax savings don’t offset the losses incurred from cutbacks in support programs.
Research indicates that by 2034, OBBBA could jeopardize Medicaid for 1.2 million tipped workers. So it seems, whether this act will truly benefit those it’s meant to help is an open question, much like Trump’s previous promises.
