Trump’s ‘No Tax on Tips’ Proposal: A Bartender Speaks Out on Why It Seems ‘Too Good to Be True’

Maddy Lopez has been a bartender in Los Angeles for 25 years, relying heavily on tips to support her income. When she heard about President Trump’s proposed policy, “no tax on tips,” she was skeptical. “It sounds too good to be true,” she said, recalling that tax breaks often come with hidden catches.

Experts agree that it’s wise to have questions. The finer points of this new policy are still vague. For instance, which jobs and types of tips will actually qualify for the break? T. Cooper, a hair and makeup stylist in New York, warned that many people misunderstand the policy. “You’ll still have to pay taxes on tips,” she emphasized.

Both parties have discussed this “no tax on tips” idea throughout the 2024 campaign cycle. The current proposal allows a deduction of up to $25,000 on taxable income from tips. It’s worth noting that this deduction only kicks in for those earning less than $150,000 and it has a short lifespan; it’s set to last from 2025 to 2028. However, workers will still be liable for state taxes and payroll taxes for Medicare and Social Security. Ben Henry-Moreland, a financial planner at Kitces.com, highlights that important reporting rules from the IRS regarding tip income and deductions are still unclear.

Currently, anyone earning $20 or more in tips per month must report those tips to their employers, according to the IRS. This includes cash tips, shared tips among staff, and credit card tips. With upcoming clarifications expected in October, many are keeping a close watch.

The details around what counts as a “qualified tip” also remain fuzzy. The policy specifies that tips must be given voluntarily, raising questions about mandatory gratuity charges added to bills for larger parties.

Interestingly, tipping patterns are evolving. A recent report from Square shows that the average tip in restaurants has dipped to 14.99%, compared to 15.17% a quarter earlier. “As consumer confidence shifts, tips are falling, and workers are earning less,” said Ming-Tai Huh from Square. A survey from Bankrate revealed that 41% of Americans believe tipping has become excessive, a significant rise from last year.

Cooper pointed out that rising service costs make tipping more complicated. Prices of services, including haircuts, have increased due to the rising costs of materials and rent. “It’s not that people mind tipping; it’s just that overall service costs are much higher,” she explained. At the same time, Lopez noted that reduced consumer spending has also impacted tips. Smaller tabs lead to lower overall tips—even if the percentage remains the same.

This evolving landscape of tipping reflects deeper economic trends. It’s essential for workers in service industries to stay informed about changes in tax policy and consumer behavior. Keeping an eye on how these changes unfold will help navigate a complex and often unclear world of tipped income.



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