Sen. Ted Cruz and several other prominent Republican senators have introduced legislation to fulfill Donald Trump’s campaign pledge to stop taxing restaurant workers’ tips.
The bill would amend Internal Revenue Service regulations to exempt all the gratuities servers, bartenders, hosts and other front-of-house workers report as income. The federal tax break would begin with the 2025 tax year.
The income would be exempt regardless of whether it was left as cash or on a credit or debit card.
The watchdog group Committee for a Responsible Federal Budget said Sunday that excluding tips from taxable income would cost the federal government about $250 billion in revenues.
For decades, the IRS has strived to capture more of the income that restaurant workers earn in tips. If the money is left as cash, there’s no paper trail for verifying whether servers and bartenders are reporting all they pocket as taxable income. Trump’s promise would be a direct reversal of the tax agency’s efforts.
Cruz’s measure has the support of the National Restaurant Association, the Texas Restaurant Association, the Professional Beauty Group and other organizations representing industries where tipping is common.
“The ‘No Taxes on Tips Act’ would provide immediate tax relief for more than 2.2 million restaurant employees and their families, putting more money in their pockets at a time when we're all feeling the squeeze of higher prices,” Sean Kennedy, EVP of public affairs for the National Restaurant Association, said in a statement.
Restaurant employers would likely feel no immediate benefit. However, by increasing the net income of workers, the legislation would presumably ease the wage pressure that has driven up restaurant pay in recent years.
Joining Cruz (R-Texas) in sponsoring the legislation are Sens. Steve Daines (R-Montana), Rick Scott (R-Florida) and Kevin Cramer (R-North Dakota).
At a rally earlier this month in Las Vegas, where nearly half the population works in the hospitality industry, Trump promised to exempt tips from federal income taxes if he’s reelected to the U.S. presidency in November. The pledge was an apparent ad lib. The former president added that shielding the tips would be one of his first acts after being sworn back into office.
It was not clear at that time how the would-be president would make that happen. Cruz’s bill provides a way.
Since Trump aired the pledge, the initiative has won the support of several of his prominent supporters. Republican congressman Marjorie Taylor Greene and musician Kid Rock have both called on consumers to push the notion of exempting tips by writing “No taxes on tips!” on their restaurant bills going forward.
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