Trump’s promise to eliminate taxes on tips sounds like a win for tipped workers, but the majority—mostly women—won’t see meaningful benefits. The real solution lies in raising the minimum wage and addressing systemic wage inequities.
It’s a brand-new administration, and the new prez is determined to fight for the underdog—if his past pronouncements can be taken seriously. Case in point? “To those hotel workers and people who get tips, you are going to be very happy, because when I get to office we are going to not charge taxes on tips, people making tips,” Trump said last June. “We’re going to do that right away, first thing in office.”
On Jan. 25, 2025, Trump once again promised to fulfill this campaign pledge at a rally in Las Vegas. “If you’re a restaurant worker, a server, a valet, a bell hop, a bartender, one of my caddies,” said Trump, “your tips will be 100 percent yours.”
Quickly jumping on the Trumpster bandwagon, Sen. Ted Cruz (R-Texas) introduced a bill exempting tips—whether cash, credit and debit card charges or checks—from federal income tax by allowing taxpayers to take a 100 percent deduction for wages that include tips.
If the new Congress passes the bill, it should be a real boost for low wage workers who depend on tips to make ends meet—right? Well, not exactly.
Cutting taxes on tipped wages sounds great, until you get under the hood and learn that most tipped workers don’t earn enough to pay federal taxes in the first place. It’s what you might call a phantom benefit, but it sounds good when politicians propose getting rid taxes on tips.
So what does all this really mean for tipped workers the majority of whom are—you guessed it—women in the restaurant industry. According to an extensive report by the Institute for Women’s Policy Research in Washington, female servers overall earn only 78.5 percent of what male servers earn, and women from all racial and ethnic groups make less than white men in the same jobs, underscoring persistent wage inequities. Black women are at the bottom with median earnings of $50,470 in 2023, with Latina women close behind.
The elephant in the room of course is our shamefully low minimum wage structure. The federal tipped minimum wage is $2.13 per hour, meaning employers are only required to pay an employee who gets tips $2.13 per hour in direct wages, as long as their tips combined with that amount reach the federal minimum wage, which has been stuck at a pathetic $7.25 since 2009.
Bottom line? Getting rid of the tipped minimum wage will help only a tiny fraction of tipped workers. Raising federal, state and local minimum wages enough to afford a decent standard of living would provide a much more substantial boost—if lawmakers will think big enough.
Most tipped workers don’t earn enough to pay federal taxes in the first place.
Some states and even cities are already moving in that direction. Thirty-one states have raised their minimums above the federal floor, with Washington, D.C., and California the highest at $17.50 and $16.50 respectively. That’s great, but depending on a patchwork of raises one state or city at a time is too slow and too piecemeal.
We need systemic change—and enough of it to pull people out of poverty. Shamefully, 20 states have stuck with the federal minimums, so workers in those states are still way behind the eight ball, and will remain so until the feds boost the floor above $7.25. They’re liable for taxes on the totals they earn, tips included, if their income in 2024 was at least $29,200 if married filing jointly, $21,900 if head of household and $14,600 as a single filer. (Sixty-five or older minimum income limits are higher.)
Talk about keeping the poor poor. In most parts of the country the lowest rents exceed $14,600, with the U.S. average $1712 per month—never mind food, clothing, transportation and other niceties. So getting rid of the tipped minimum does almost nothing to really help low wage servers and other tipped workers, the majority of whom are female.
What we really need to do to help these workers is raise the minimum—a lot. Naysayers will claim doing that and also getting rid of personal income taxes on tips altogether would cost the government too much.
But there’s another way to pick up the slack that will give the government more money, not less. If we’re going to monkey around with personal income taxes, let’s be sure everyone is included. You know, guys like Elon Musk and Warren Buffet, neither of whom pay personal income taxes most years. And they’re not alone—the tax codes are written so that the megarich can live on megabucks from investments and never have to take a paycheck with those nasty tax deductions.
Corporations are getting a relative free ride too. Their tax on profits is a flat 21 percent, while individual income tax rates go up as income goes up. Even mid level earners—$47,150 to $100,525—pay 22 percent and it goes up rapidly from there to a high of 37 percent.
If the boys in the C-suites and their companies had to pony up their fair share, it would increase government revenue with plenty of money to boost the minimum wage to a livable level, and raise the standard of living for (the mostly female) tipped workers in the bargain.
