Some interesting points: ~40% of tipped workers don't make enough to get taxed anyway, no tax on tips would actually advantage better paid workers like casino dealers who don't need the help. NToT is described as a campaign to distract from minimum wage increase initiatives.
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That’s a weird way to say a sizable majority of tipped workers do pay taxes and will benefit from this.
Beware the logical fallacy. "A implies B" does not mean that "not A implies not B".
Workers who earn too little to pay taxes (A) will not benefit from a tax cut (B).
But workers who earn enough (not A) may still not benefit (not B), for example because their employer indirectly pockets the difference. That is actually being argued in the article.
So this is indeed the appropriate way of formulating the statement: at least 40% of workers will demonstrably not benefit from this.
Pretty sure they are aware, they included the qualifier "a sizeable majority" instead of implying it applied to all.
I can't read this article because of the paywall. Are they saying that taxable tips are subject to payroll taxes (which employers pay out of pocket)? That would actually benefit both employers and employees in some sense.
Some tipped workers, like bartenders, can make more in tips than a junior software engineer lol. Less taxes definitely helps their cause.
If you are concerned with indirect effects, there's quite a few pros and cons that you could extrapolate from the no tax on tips policy. These arguments are far less compelling in general.
https://archive.is/20250731232051/https://www.newyorker.com/...
> Some tipped workers, like bartenders, can make more in tips than a junior software engineer lol. Less taxes definitely helps their cause.
neat, but you can only deduct up to $25k and the benefits phase out if you earn more than $150k (single filers).
> I can't read this article because of the paywall
I just turned on reader mode in Firefox and then refreshed the page and got the article. I'm surprised how often it works. It often doesn't but sometimes it does.
But it would be true to say not B implies not A right? (contrapositive?)
In that case B would be "is not taxed on the income" and A is "part of the 40%" making the statement not B implies no A: "If you are taxed on your tips that implies you are not part of the 40%".
That seems correct. It's a pretty useless statement, but it is true.
Well, to be fair, the IRS considers the average tip to be 8% for taxation purposes.
The whole "I get taxed whether you tip me or not", "I have to pay to serve you if you don't tip"? No, not so much. If you can show (there's even a hugely burdensome IRS form that might take as much as 3-4 minutes a month for cash tips) that you earned less than that 8% average, then that's what you get taxed. But most servers don't want to fill that form out, because they get ... rather more than that, and are being undertaxed already.
it's indirect tax credits for businesses that don't want to pay workers.
No, it isn't. It doesn't affect the wage they have to pay them. It just affects whether the employees need to pay taxes on tips.
There is no useful point to saying what you just said.
You can make that argument about literally anything that reduces the tax burden on people who's primary income is useful income.
The tax system is graduated. If 40% don’t make enough to hit a band where income is taxed, then you can assume it’s a gentle ride from paying no taxes to not paying much taxes. And anyways, payroll taxes are by far the higher burden for service workers than income taxes.
Sure, but TFA makes clear that any benefit to workers from tax-free tips is laughable compared to the numbers of times the restaurant lobby has fucked them over, by repeatedly killing attempts to keep wages low. It's not even throwing workers scraps, it's more like throwing them crumbs.
and it’s a not even a forever thing like the rich guys got. this thing sunsets.
They may not pay any income taxes, but they almost certainly pay FICA taxes. If the NToT includes FICA, they would be better off. However, I still think it is terrible idea to advantage some employment classes and means of compensation over others like that.
Yes, creating special exceptions like this is an awful idea.
More carve-outs complicating the tax code and pandering to specific constituents is a bad thing.
It reminds me of listening to a story of how day care business owner-operators are not required by law to contribute to Social Security, don’t, and are then screwed at the end of their life because they don’t have any way to retire.
No tax on tips does not apply to payroll taxes (FICA).
https://jacobin.com/2025/07/restaurant-industry-tipped-submi...
https://jacobin.com/2020/10/tipped-restaurant-workers-waiter...
https://cepr.net/publications/customer-tips-are-providing-th...
I live in California and this isn't true here. All restaurant workers receive at least minimum wage before tips. In my city, that's $19/hour with health insurance.
Of course, you're still expected to leave a tip and suggested minimum is now 20%, plus even McDonalds is charging $15 for a 4 oz burger, so I rarely go out to eat at places that expect a tip anymore.
I'm not sure why they specifically should be tax exempt though. Cash tips often were, practically speaking, so a lot of tax evasion was happening, but it still seems odd to single them out.
Yeah, there is a lot of shadiness going on these days. I don't think tips should be requested in any sort of transaction where the employee gets paid more than minimum wage. Restaurants always had this weird system where you could avoid paying your employees if they were tipped, so it was drilled into everyone's head "you're stealing from poor innocent workers if you don't tip 20%". But this is not the case for most workers, and so tips should be truly for exceptional service in cases where the job position is on a normal pay scale.
This isn't to say that I don't tip when not required to or that I only tip people I think are being underpaid, but ... things have gotten a little out of control. If I feel like tipping, I'll tip. I do not need a prompt suggesting anything when it's not coming out of the employee's takehome pay.
I hate to say it but I think some government regulation is required here.
Peak tip cynicism is when you're at an upscale restaurant where the wait staff are obviously being paid more than minimum wage, the bill automatically includes a gratuity (often 18% or more), and then on top of that, there's a line to include another tip.
Any fee or surcharge beyond the listed menu prices and associated taxes are a tip as far as I'm concerned.
If the restaurant is going to be shady and unilaterally introduce confusion to an already confusing norm, then I consider that norm voided and fair game for any interpretation.
Another peak of cynicism is that the owners try to argue that the "service charge" is legally not a tip so it doesn't need to be distributed to workers.
Upscale restaurants that tip is often being split 5 or 6 ways... not just the primary server, but also the bartender, sommelier, food runners, etc.
It's not a "tip" if it's included. Biggest scam ever.
Seven states do not have a separate, lower minimum wage for tipped employees. Instead, they require employers to pay tipped employees the full state minimum wage, regardless of tips received. These states are Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington.
Sixteen states use the federal tipped minimum wage of $2.13: Alabama, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Nebraska, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, and Wyoming.
> Seven states do not have a separate, lower minimum wage for tipped employees
There's a subtle but important difference in wording. There is no "lower minimum wage" for any employee anywhere. The rule is that employers may credit tips towards pay, up to a certain amount. And they can never credit 100% of pay.
So tipped employees should always earn: minimum_wage + stochastic_number
"lower minimum wage for tipped employees" is incorrect and is just the interpretation of "minimum employer must pay after applying tip credits". Subtle, but very different things! If you aren't earning at least minimum wage (tips inclusive), then your experiencing wage theft.
The DOL page[0] specifically says "Maximum Tip Credit Against Minimum Wage" and that's how the column "Minimum Cash Wage" is calculated, but under no circumstances[1] can the employer pay less than "Minimum Cash Wage". Anything less is illegal. ALSO under no circumstances[1] may an employee earn less than minimum wage.
[0] https://www.dol.gov/agencies/whd/state/minimum-wage/tipped
[1] We're ignoring allowed deductions like lodging and meal
Right, but if a tipped employee in a lower-tipped-minimum state doesn't make the full minimum wage when their tips are included, it's a lot easier in a place like that for a shady employer to fail to top up their wage. Yes, in theory there are ways for employees to get this enforced, but in practice they are very reasonably and understandably wary about making use of those legal avenues.
Not to mention that in a state where there is no lower tipped-wage minimum, all tips go to the employees directly. In a state where the tipped minimum is lower, tips effectively go to the employer for the amount between the tipped minimum and regular minimum, as that's a cost the employer would otherwise have to pay.
I knew someone who worked a graveyard shift at a Waffle House in NC. After their first month, when tips were distributed, they did not make the federal minimum wage, so they had to request additional pay to get to minimum wage (IIRC it was not automatic).
Waffle house then opened an "inquiry" since if they weren't making minimum wage through tips, it must have been because their service was poor (of course it's actually because it was a weekday graveyard shift).
They got their additional $30 or whatever and were then let go.
So while I agree it is illegal to pay less than federal minimum wage, even with tips, but in practice the system is built such that for poor workers in poor areas, they will frequently make less than minimum wage.
Although probably much less nowadays since the $7.25 is still the federal minimum wage and it's pretty hard to find people desperate enough to work for that little money since recent inflation.
This is a lot of words for a distinction without a difference.
> I live in California and this isn't true here
To be clear:
- Any worker that is not making *at least the state's minimum wage* (including tips) is suffering from wage theft. (with the exception of Georgia (WTF))
- Any worker not receiving a positive valued check are suffering from wage theft
- Tips only count as a credit and no state lets tips act as a 100% credit to the wage[1]. Credits may be amortized across "workweek" pay.
[0] https://news.ycombinator.com/item?id=44751537 (sources linked here)
[1] Federal only lets max credit of 70% of min wage. Some states go up to ~75% of min wage, but their minimum wage is higher than federal.
Servers, often, seem to think it's our (the customer's) obligation to compensate for the sins of their employer.
"Many restaurant owners illegally don't actually follow this law". "Report them to the DOL". "I don't want to do that. You should tip me to make sure I have a livable wage instead."
> even McDonalds is charging $15 for a 4 oz burger
Jeez, where is this? According to the famous McCheapest map the most expensive Big Mac in America is about 8 bucks. Have prices really shot up that much recently?
https://www.yelp.com/biz_photos/mcdonalds-san-francisco-61?s...
What got lost in an edit was that's for the combo with a bag ($0.25 extra).
>Of course, you're still expected to leave a tip and suggested minimum is now 20%, plus even McDonalds is charging $15 for a 4 oz burger, so I rarely go out to eat at places that expect a tip anymore.
Don't tip, especially 20%, for over the counter service. That is ridiculous.
>I'm not sure why they specifically should be tax exempt though. Cash tips often were, practically speaking, so a lot of tax evasion was happening, but it still seems odd to single them out.
It's just a gimmick to get votes. The theory is that poor people tend to be the ones that work these jobs, they need a break, and it's not a policy that would cost very much anyway. There is a cap on the tips and most cash tips were going unreported anyway.
I'm happy that CA doesn't set a lower min wage for tipped workers, but the problem is that in many/most places in CA, $19/hr is still not a living wage, so the tips are more or less required to keep those workers housed and eating.
A living wage in most population centers in CA is nearly $30/hr.
People argued the living wage was $15/hour in California a few years ago. Then it was $20/hour. Now you're saying $30/hour.
I have to ask what is causing what's considered a living wage to increase so rapidly, because it appears to be increasing far faster than the national inflation rate.
It sounds like a wage-price spiral, though I'm not aware of anyone claiming we're in one.
It's actually even worse than that. The $19/hr and health insurance comes from increasing menu prices, so with flat percentage tips, you're paying more purely for the privilege of paying more.
California doesn't have a special minimum wage for tipped professions? When I was waiting tables a long time ago I think my pay was $1.95 an hour. It was usually just enough to cover tax on tips (the ones we admitted).
> California doesn't have a special minimum wage for tipped professions?
The difference is where the money comes from: directly from employer vs directly from customer. But in all cases *the sum of these sources* must equal the minimum wage.
If the employee is not taking home at least minimum wage, then the employer is guilty of wage theft.
If the employer does not make at least $x towards an employee's wage, the employer is guilty of wage theft.
So instead, read the CA's (and AK, MN, MT, NV, OR, WA) rule as "tips may not be credited towards an employee's salary".
[0] https://www.dol.gov/agencies/whd/state/minimum-wage/tipped
Looks like it changed in 1988 due to a state supreme court ruling about a 1975 law. The law said the tips were the "sole property" of the employee and couldn't be counted by the employer as wages.
https://www.latimes.com/archives/la-xpm-1988-11-01-mn-628-st...
California has not had a tipped minimum wage since at least the early 2000s, and I can’t seem to find any information on what is in the 1900s.
They eliminated the special minimum wage for tipped professions in Seattle too, which is currently $20.76 per hour.
Nope. Tipped workers are paid full minimum wage in California.