No Tax on Tips: Benefits and Concerns

Overview

In 2024, the U.S. administration and some members of Congress proposed ending federal taxes on tips as a way to support service workers. This new law is making its way through congress and was approved in May 2025. While the idea may sound helpful on the surface, the deeper implications raise important questions about fairness, equity, and the long-term impact on tipping culture in America.

The Case For No Tax on Tips

Supporters of the proposal argue that:

✅ It Puts More Money in Workers’ Pockets

Tipped workers often struggle to make ends meet. Eliminating federal taxes on tips could allow them to keep more of what they earn—especially in high-cost areas.

✅ It’s a Quick Way to Provide Relief

Unlike minimum wage increases, which require legislation and business adaptation, a tax cut could offer immediate financial relief for millions of workers.

✅ It Recognizes Hard Work

The proposal is framed as a way to show respect for the service sector—particularly after the pandemic exposed how essential and undervalued those workers are.

But There Are Serious Concerns

From a fair wage perspective, removing taxes on tips presents several red flags:

⚠️ It Encourages Tipping Dependency

By promoting untaxed tips as a benefit, the proposal reinforces the flawed idea that tips—not wages—should be the primary source of income for service workers.

⚠️ It Lets Employers Off the Hook

This policy shift could distract from the real solution: requiring employers to pay a full, living wage. It risks prolonging or worsening the subminimum wage system.

⚠️ Increases Pressure on Customers

With tips becoming even more financially important, customers may feel more guilt and pressure to tip generously—regardless of the service or situation.

⚠️ Unequal Benefits

Higher earners in tipped industries (e.g. fine dining) would benefit the most from this policy. It may widen the gap between different types of service workers and overlook those in low-tip or inconsistent jobs.

What Experts and Advocates Say

Economic Policy Institute: Advocates for eliminating the subminimum wage rather than subsidizing low pay through tax changes. Service workers’ unions: Warn that tax-free tips could entrench tipping culture and reduce momentum for wage reform. Public opinion: A growing number of Americans support phasing out tipping altogether in favor of upfront pricing and wage transparency.

Our Position

At EndTippingCulture.org, we believe in structural reform—not band-aid fixes. While tax relief may help in the short term, it risks delaying the systemic change workers truly deserve: fair, consistent pay directly from employers.

Tips shouldn’t be taxed—but more importantly, they shouldn’t be necessary.