- 2/1/2025 10:04:58 PM
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As the presidential campaign ramps up, former President Donald Trump and Vice President Kamala Harris are vying for the support of service and hospitality workers by pledging to eliminate taxes on tips.
But experts argue that this proposal may not benefit many tipped workers, as a significant portion of them do not earn enough to owe federal income taxes.
Both Trump and Harris have expressed support for the idea of eliminating taxes on tips, but detailed proposals are yet to be released. Questions remain about the extent of tip income that would be tax-free, potential fraud prevention measures, and whether both federal income and payroll taxes would be eradicated.
Harris plans to pair her tip tax elimination with a push to raise the minimum wage and impose income limits to prevent abuse of the policy. Hedge fund managers and lawyers would not be able to exploit this system, and tips would still be subject to payroll taxes.
Senator Ted Cruz introduced a bill named the "No Tax on Tips Act," which would allow workers to deduct tips from their federal income taxes, excluding payroll taxes that fund Social Security and Medicare.
Tipped workers typically earn less than non-tipped workers and often fall below the threshold for federal income tax. Many in the hospitality industry depend on tips for a significant portion of their income.
Removing taxes on tips could significantly impact the federal budget deficit, potentially leading to a loss of billions in revenue over the next decade. The specifics of the legislation will determine the exact financial impact.
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