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Why No Tax On Tips May Be Making Americas Tipping Problem Worse · THE DAILY BRIEF

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  Speaker 1: I'm Colin Sheety. I work front of house at Birderstand Lawrence.
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  Speaker 1: I've been a tip worker for about five years, so
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  Speaker 1: I think the prospect of having to pay less than
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  Speaker 1: taxes is enticing.
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  Speaker 2: The new note tax on Tips provision in the One
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  Speaker 2: Big Beautiful Bill allows tipped employees to deduct up to
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  Speaker 2: twenty five thousand dollars from their federal tax filing each year.
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  Speaker 2: The program began in twenty twenty five and is in
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  Speaker 2: place through twenty twenty eight. This provision will increase average
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  Speaker 2: take home pay for tipped workers by one three hundred
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  Speaker 2: dollars a year.
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  Speaker 3: But I think this is something that will be powerful,
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  Speaker 3: will be popular people like and I have a high
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  Speaker 3: level of confidence that Congress is going to extend it.
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  Speaker 2: But not everyone is excited about the new policy.
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  Speaker 1: And I kind of did like thirty minutes of research,
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  Speaker 1: and my opinion changed pretty quickly. It's really just meant
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  Speaker 1: to kind of save that employers continue to pay at
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  Speaker 1: sub minimum wage, and then the burden goes on to
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  Speaker 1: the customers that they have to pay basically your wage.
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  Speaker 2: This comes as customers are growing weary if tipping encounters.
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  Speaker 2: Data shows nearly nine out of ten Americans believe tipping
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  Speaker 2: has gotten out of control.
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  Speaker 4: I know being a counter service restaurant tip fatigue is
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  Speaker 4: very real, not just for our business, our industry, but
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  Speaker 4: across all industries.
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  Speaker 5: We're the only country in the world that has the
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  Speaker 5: system of tipping that forces customers to pick up the
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  Speaker 5: tab for workers' wages. Adding this no tax on tips
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  Speaker 5: provision into the tax code just exacerbates the system.
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  Speaker 2: Thirty seven percent of tip workers face the zero federal
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  Speaker 2: income tax burden, so they would receive no benefit from
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  Speaker 2: no tax on tips as it's presently written.
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  Speaker 6: Low income households do not benefit from no tax on
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  Speaker 6: tips because they already don't pay federal income tax and
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  Speaker 6: they get the double whammy on the back end of
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  Speaker 6: Medicaid and other social services cuts that were pasted as
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  Speaker 6: part of the bill.
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  Speaker 2: CNBC went to the burger stand in Lawrence, Kansas to
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  Speaker 2: find out how no Tax on Tips is impacting their
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  Speaker 2: business and what it means for the future of tipping
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  Speaker 2: in the US.
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  Speaker 7: Does it.
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  Speaker 8: Nevadens our families. We're being squeezed and they need real relief.
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  Speaker 8: They need us to work together to lower costs for them.
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  Speaker 8: That's why I introduced the No Tax on Tips at
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  Speaker 8: alongside Senator Ted Cruz from Texas, which would eliminate federal
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  Speaker 8: income taxes on tip wages.
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  Speaker 2: Here's how no Tax on Tips works. Tip earners will
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  Speaker 2: be able to deduct up to twenty five thousand dollars
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  Speaker 2: from their federal income when they file annually. Individuals earning
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  Speaker 2: one hundred and fifty thousand dollars or three hundred thousand
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  Speaker 2: dollars for joint filers are disqualified. No Tax on Tips
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  Speaker 2: ends in twenty twenty eight, and tips must be voluntary
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  Speaker 2: and not be a part of negotiation like service charges
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  Speaker 2: or auto gratuities.
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  Speaker 3: And the idea I have to give one hundred percent
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  Speaker 3: of the credit to President Trump.
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  Speaker 1: No tax, no tax rip.
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  Speaker 8: He says.
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  Speaker 3: The waitress comes up to him, and he says she
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  Speaker 3: seemed stress and u and he asked her, you know
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  Speaker 3: what's wrong? And she said, what's just such a hassle
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  Speaker 3: paying taxes on tips? It's incredibly burdens And Trump said,
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  Speaker 3: he just wrote down on a piece of paiper you said,
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  Speaker 3: no tax on tips. I said, what do you think
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  Speaker 3: of that? She said, fantastic. So I came back to
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  Speaker 3: this office right here, I assembled by tax team together,
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  Speaker 3: I said, let's write, let's draft the legislation to make
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  Speaker 3: the President's idea a reality.
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  Speaker 2: No Tax on Tips was originally introduced as a standalone
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  Speaker 2: bill and passed the Senate with unanimous consent.
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  Speaker 5: Is there objection to proceeding to the measure without objection.
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  Speaker 2: But was eventually folded into the overall One Big Beautiful
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  Speaker 2: Bill as a provision to be enacted when Americans file
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  Speaker 2: in twenty twenty six. The IRS has provided penalty relief
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  Speaker 2: for tax your twenty twenty five. As taxpayers adjust to
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  Speaker 2: the new policy, lawmakers and tax and restaurant industry insiders
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  Speaker 2: point to several groups that are set to benefit from
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  Speaker 2: the no Tax on Tips provision.
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  Speaker 7: Small businesses are actually going to benefit from policies like
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  Speaker 7: removing taxes on tips because it allows their employees to
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  Speaker 7: get a to get a pay raise effective pay raising
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  Speaker 7: their take home pay right without the employer having to
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  Speaker 7: actually incur any of those costs.
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  Speaker 2: Nevada is one state that's champion of the bill. It
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  Speaker 2: has about twenty five percent of its workforce and tip jobs,
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  Speaker 2: thanks in part to the gaming industry, whose dealers make
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  Speaker 2: enough money to benefit from the provision.
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  Speaker 5: And because it's a tax deduction, it inherently benefits the
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  Speaker 5: people who are making the most income because the more
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  Speaker 5: income you make, the more tips you make, the more
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  Speaker 5: you have to deduct from your taxable income.
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  Speaker 9: Tips are howd Nevadas pay their rent, cover their groceries,
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  Speaker 9: take care of their families, their kids, and Nevada has
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  Speaker 9: more tipped workers per capita than any other state. So
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  Speaker 9: this bill would mean immediate financial relief for countless hardworking families.
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  Speaker 3: I think it's going to make a real difference for
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  Speaker 3: waiters and waitresses and bar tenders and taxicab drivers, uber
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  Speaker 3: drivers and barbers and hair stylists.
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  Speaker 4: For us, that's huge. I think that that's a great
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  Speaker 4: way to make a big impact on our team's take
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  Speaker 4: home pay.
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  Speaker 2: Gusta Research conducted a study that suggested the no tax
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  Speaker 2: on tips provision will be good for employee retention in
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  Speaker 2: small businesses.
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  Speaker 7: Our study found that replacing a tipped employee costs about
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  Speaker 7: eight thousand dollars, and that's because small businesses have to
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  Speaker 7: host a new job. They have decreased productivity while their
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  Speaker 7: headcount is below what it should be, and then they
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  Speaker 7: have decreased productivity as they're training new employees to come
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  Speaker 7: up to speed. All in all, that comes to about
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  Speaker 7: eight thousand dollars for the small business to pay to
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  Speaker 7: replace any one employee. But we do expect, you know,
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  Speaker 7: small businesses to be able to hold onto their employees
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  Speaker 7: longer because they're making more money.
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  Speaker 2: But experts suggest no tax on tips could be detrimental
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  Speaker 2: in the long run.
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  Speaker 6: We don't like the tax code to treat two tax
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  Speaker 6: payers that are otherwise the same differently. And the way
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  Speaker 6: that this bill works, a tipped worker who works in
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  Speaker 6: a restaurant receives potentially a tax cut that an elementary
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  Speaker 6: school teacher does not simply because she doesn't work for tips,
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  Speaker 6: she works for wages.
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  Speaker 10: When you're misclassifying people, when you are avoiding those taxes
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  Speaker 10: by having people label us in within a contractors and
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  Speaker 10: so on, the community suffers as well from the loss
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  Speaker 10: tax revenue, which of course goes into your schools and
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  Speaker 10: road repairs and so on.
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  Speaker 5: Only about two and a half percent of workers in
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  Speaker 5: the US are tipped, so that already limits substantially the
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  Speaker 5: number of workers who can possibly benefit from this policy.
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  Speaker 5: And then on top of that, more than a third
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  Speaker 5: of tipped workers actually don't receive enough income annually to
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  Speaker 5: even file federal.
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  Speaker 2: Tax most guests CNBC spoke with, So just a better
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  Speaker 2: way to help tips employees is to guarantee them wages.
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  Speaker 1: I'm able to recognize we're not just going to completely
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  Speaker 1: get rid of tipping culture in the country, and maybe
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  Speaker 1: we shouldn't, but I don't think we should be moving
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  Speaker 1: towards more tipping culture rather than less of it than
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  Speaker 1: we already have.
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  Speaker 6: Now, the better way to help low income workers is
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  Speaker 6: to increase that minimum wage. They can still work for tips,
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  Speaker 6: but we just increase the amount of their income that
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  Speaker 6: is guaranteed, because again, what they suffer from is volatility
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  Speaker 6: and tip income, and we want to pull them into
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  Speaker 6: more stable earning streams.
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  Speaker 4: It's really really important for those of us that are
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  Speaker 4: actively working to make tipping not so much a crucial
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  Speaker 4: part of our talented team members' paychecks to continue to
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  Speaker 4: push for better systems, higher minimum wages, and other ways
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  Speaker 4: where we can ensure that our industry is valued.
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  Speaker 2: Several states allow employers to pay their tipped employees the
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  Speaker 2: federal cash minimum wage of two dollars and thirteen cents
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  Speaker 2: an hour, last amended in nineteen ninety six two dollars
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  Speaker 2: and thirteen cents in January of nineteen ninety six is
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  Speaker 2: now worth a dollar and four cents in November of
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  Speaker 2: twenty twenty five. Multiply that over two thousand and eighty
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  Speaker 2: hours worked in a year, and annual wages are more
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  Speaker 2: than haved, going from almost four thousand, five hundred dollars
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  Speaker 2: to just over two thousand dollars before taxes.
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  Speaker 4: I think that minimum tipped wage needs to be eliminated altogether.
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  Speaker 4: I think it is a way to continue to drive
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  Speaker 4: down wages and keep the inequity between front of house
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  Speaker 4: and back of house.
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  Speaker 2: The Department of Labor has seen cases where employers don't
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  Speaker 2: pay employees their tips fairly. The Labor Department's Wage and
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  Speaker 2: Hour Division noted it recovered more than two hundred and
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  Speaker 2: seventy three million dollars in back wages in fiscal year
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  Speaker 2: twenty four. With increased wages comes labor cost challenges for employers.
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  Speaker 3: If you jack up the cost of wages, what the
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  Speaker 3: small business owner will do is replace a human being
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  Speaker 3: with a machine. And so you look at particularly in
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  Speaker 3: places like California, you go in and order on an iPad.
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  Speaker 3: Why because you don't have to pay that iPad anything
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  Speaker 3: per hour.
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  Speaker 11: Do you have a bunch of restaurants in Seattle right
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  Speaker 11: now who are looking at a minimum wage of over
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  Speaker 11: twenty dollars an hour and that's putting their labor line
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  Speaker 11: over forty percent, which isn't a sustainable way to operate
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  Speaker 11: a business. And the restaurantchores are saying, we know housing
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  Speaker 11: prices are too high, we know we need to compensate
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  Speaker 11: our people well, and at the same time, we don't
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  Speaker 11: know how to do this and keep the businesses open.
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  Speaker 2: The restaurant community is working on finding an innovative pay
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  Speaker 2: model that allows businesses to thrive while paying employees for wages.
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  Speaker 2: They believe auto gratuities and service charges, two ideas excluded
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  Speaker 2: from no tax on tips could be it.
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  Speaker 11: If the Fed's going to say we want to help
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  Speaker 11: restaurant workers period, we need them to tweak some things
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  Speaker 11: in the regulations as written to both come in line
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  Speaker 11: with federal labor law, to override some of the things
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  Speaker 11: that states are doing, and to allow those service charges
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  Speaker 11: and autographs.
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  Speaker 4: By the current draft, not being inclusive of auto gratuities
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  Speaker 4: and service charges really causes a lot of missteps. I
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  Speaker 4: think auto gratuities and service charges are able to be
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  Speaker 4: shared with the entirety of the team, the entirety of
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  Speaker 4: the staff, whereas traditional tips really only benefit the customer
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  Speaker 4: facing staff members.
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  Speaker 1: To the people that they were really wanting this bill
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  Speaker 1: to touch on, the people that because they're trying to
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  Speaker 1: appeal to, like service industry workers or middle class workers,
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  Speaker 1: or even low income workers, it doesn't affect them, and
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  Speaker 1: it's like waving keys in front of their face and
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  Speaker 1: hoping that it persuades them.
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  Speaker 11: And it did.
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  Speaker 1: It worked.
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  Speaker 6: So thinking back to sort of wage protections and worker protections,
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  Speaker 6: we have for a long time been trying to push
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  Speaker 6: away from tip income because, again for low income households,
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  Speaker 6: that can be because there's no guarantee on how much
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  Speaker 6: you earn, like a minimum wage, a very volatile source
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  Speaker 6: of income.
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  Speaker 4: Relying on tips is something I would love to not
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  Speaker 4: have to do as a small business owner, and I
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  Speaker 4: think we've navigated a really wonderful way to rely on
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  Speaker 4: them less and less in our last almost seventeen years
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  Speaker 4: in operation.
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  Speaker 3: It was drafted through twenty twenty eight just in terms
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  Speaker 3: of the scoring process, but I think this is something
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  Speaker 3: that will be powerful, will be popular people will like,
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  Speaker 3: and I have a high level of confidence that Congress
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  Speaker 3: is going to extend it.
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  Speaker 10: Mhm.