.jpg)
A bipartisan Senate bill, introduced by Sens. Ted Cruz (R-TX) and Steve Daines (R-MT), aims to eliminate federal income and payroll taxes on tips for workers like servers and bartenders. Backed by Vice President-elect JD Vance and others, the No Tax on Tips Act has gained traction, especially after former President Donald Trump championed the idea during his campaign. The proposal would allow tipped workers to keep more of their earnings, addressing complaints about high tax burdens on low-wage earners.
However, the bill doesn’t tackle the subminimum wage—$2.13 per hour for tipped workers under federal law—drawing criticism from labor advocates. They argue that removing taxes on tips without addressing the low base wage fails to provide meaningful financial security, as tips are inconsistent and often insufficient. The federal tipped minimum hasn’t risen since 1991, and while some states have higher minimums or have eliminated the subminimum wage, seven states still rely solely on tips to meet the $7.25 federal minimum.
Economists warn that the tax exemption could cost the Treasury $150-$250 billion over a decade, potentially straining Social Security and Medicare due to reduced payroll tax revenue. Critics also note that tipped workers, earning a median of $15 per hour, may not see significant benefits compared to higher earners like casino dealers, who could disproportionately gain. The bill’s focus on tax relief without wage reform has sparked debate about its effectiveness in supporting low-income workers.
The proposal has strong political momentum, with endorsements from Vice President Kamala Harris and Rep. Nancy Mace (R-SC), who introduced a companion House bill. Yet, labor groups like One Fair Wage argue for eliminating the subminimum wage entirely, citing its reliance on unpredictable tips and its disproportionate impact on women and workers of color. As the bill advances, it faces scrutiny over whether it adequately addresses the economic challenges faced by tipped workers.