Donald J. Trump, President of the United States, announced his intention to eliminate federal taxes on tip income during a campaign event in Nevada. He cited support from hospitality workers who rely on tips.
"No tax on tips," said J. Trump, US President. "You just won the election. Jessica says that no tax on tips would transform her life. On day one, I immediately halted the hiring of any new IRS agents."
According to the Internal Revenue Service (IRS), the taxation of tips has long been a contentious issue in the United States, particularly for service industry workers who depend heavily on gratuities for their income. Under current IRS regulations, employees must report any tips received, and these are considered taxable income. This includes cash tips, tips received from credit card payments, and tips distributed through tip pools. The IRS mandates that employees report tips of $20 or more in a month to their employer by the 10th day of the following month. These reported tips are then included in the employee's gross income and are subject to federal income tax, Social Security tax, and Medicare tax.
Tip income constitutes a significant portion of earnings for many service industry workers. As per the U.S. Bureau of Labor Statistics, as of May 2023, the median hourly wage for waiters and waitresses, including tips, was $14.00. However, the base pay for tipped employees can be as low as $2.13 per hour in some states, with the expectation that tips will make up the difference to reach the federal minimum wage. This reliance on tips means that any changes to tip income policies can have a substantial effect on workers' overall earnings.
Time reports that the practice of tipping in the United States has a complex and controversial history. Introduced in the 19th century, tipping was initially met with resistance as many Americans viewed it as inconsistent with democratic ideals. However, it became more widespread after the Civil War, particularly as a means for employers to avoid paying fair wages to newly freed Black workers.
Trump began his career working with his father, Fred C. Trump, in Brooklyn before moving into Manhattan real estate where he developed major properties like Trump Tower and The Trump World Tower. He led high-profile restorations including the Grand Hyatt Hotel and Grand Central Terminal.