Tipping Taxes: What's Changing for Workers and Customers?

The idea of not taxing tips has been around for a while. It was a popular slogan in a recent presidential campaign. It was short and easy to remember. However, the reality of implementing such a policy is far more complicated. The Senate recently passed the No Tax on Tips Act. This act is part of a larger budget bill. It promises to give tipped workers a break on their taxes. This change would start in 2026 and last until 2028. But what does this mean for waiters, drivers, and the people who pay them? Let's break it down. First, let's talk about how tips are currently taxed. Every single tip, no matter how small, is considered income. This includes cash tips, tips added to credit or debit cards, and even tips given through the business's payment system. Workers and employers have to keep track of every penny. This rule applies whether the worker keeps the tips or they are pooled and shared among staff. Now, what exactly counts as a tip? According to the tax code, a "cash tip" includes money given in bills or coins, tips added to credit or debit cards, or tips paid through the business's electronic system. However, it's not clear yet whether tips sent directly to a server through apps like Venmo or PayPal would qualify. Service charges, which are added by the business, do not count as tips. These charges are legal in some places, but they are not considered tips. So, how would these changes affect food-industry workers and diners? It's hard to say for sure. Some experts believe that it could lead to higher wages for tipped workers. Others think it might not make much of a difference. What is clear is that the tax code is complex, and changes to it can have unexpected consequences. It's important to note that this is not the first time the idea of not taxing tips has been proposed. In fact, it has been a topic of debate for many years. The current proposal is just the latest in a long line of attempts to address the issue. Whether it will succeed or fail remains to be seen. One thing is for sure: the way tips are taxed can have a big impact on the lives of tipped workers. It can affect how much money they take home each month. It can also influence how they plan for the future. For these reasons, it's a topic that deserves careful consideration.