A bipartisan group of lawmakers led by Sen. Ted Cruz, R-Texas, introduced a bill to do away with taxes on tipped income. The legislation comes as Americans are already tipping less as prices rise, along with tipping fatigue.
Cruz and his cosponsors promised this bill would offer financial relief for those who need it most.
“American workers in many industries rely on tipped wages to make ends meet,” Cruz said in a statement. “I’m introducing my bipartisan No Tax on Tips Act — legislation I authored to fulfill President Trump’s promise to end the wrongful practice of taxing voluntary tips. I’ve long believed the GOP should be the party of bartenders, of waiters and waitresses, and this bill is an important step to ensure we are addressing the economic needs of working Americans.”
President-elect Donald Trump said he planned to get rid of tips on taxes while on the campaign trail in Nevada in June 2024.
When these proposals first came forward last year, the right-of-center Tax Foundation cast doubt on the impact of removing taxes on tips. Noting only 2.5% of the workforce are tipped employees, “the policy would leave the vast majority of low- and middle-income earners out of the loop,” the Tax Foundation said.
“The proposal would make more employees and businesses interested in moving from full wages to a tip-based payment approach,” the Tax Foundation added.
Americans are already tipping less
The average tip at a full-service restaurant fell to 19.3% in the third quarter of 2024, according to data provided to Straight Arrow News by Toast, which handles restaurant payment systems.
The current tip rate is the lowest recorded since at least 2018, according to Toast’s data. Full-service tips peaked at 19.9% in the first quarter of 2021. Tips at quick-service restaurants fell to 15.9% in 2024, also a seven-year low.
Aside from rising prices, so-called “tipping culture” is also taking its toll. A survey from Bankrate in June 2024 found 59% of Americans have a negative view of at least one aspect of tipping.
Thirty-five percent of respondents said tipping culture as a whole has gotten out of control. Meanwhile, 34% said they get annoyed with pre-entered tip screens at places like coffee shops and fast-casual restaurants. A further 11% said they are confused about whom and how much they should tip.
It starts in Nevada
When Trump declared his plan to stop taxing tipped income, the location of that announcement was no coincidence. Nevada has the highest concentration of tipped workers in the U.S. There are roughly 350,000 hospitality workers in the state, many of whom rely on tips.
That promise may have helped Trump with Nevadans. President Joe Biden won the state in 2020 by more than 30,000 votes. In 2024, Trump won by 45,000 votes. After Trump proposed the idea, Vice President Kamala Harris also endorsed the concept.
Both Democratic cosponsors of Cruz’s legislation are from Nevada: Sens. Jacky Rosen and Catherine Cortez Masto.
“Nevada’s service and hospitality workers are the backbone of our economy, and they deserve financial relief at a time when they are getting squeezed by rising costs,” Rosen said in a statement. “This bipartisan bill will ensure tipped workers in Nevada can keep more of their hard-earned money.”