Trump’s promise not to tax cash tips isn’t working
1 min read

Trump’s promise not to tax cash tips isn’t working

ThisThe situation is different in the case of the lowest paid service workers, because they receive the so-called tipped minimum wage. The federal minimum hourly wage, unchanged for 15 years, is $7.25, which is a fair amount, but employers can pay tipped workers an equal amountpoorer $2.13 the tips they provide raise their income to the hourly minimum. When cash tips predominated, these workers were likely to be tempted to undervalue their tips to their boss, thus forcing him to make up the difference. However, today (especially in fast food restaurants, where most waiters work) electronic tip screens dominate, so that the boss and the tax office can accurately track tips.

Let’s say you’re a waiter at a restaurant and you’re paid the federal minimum wage of $2.25 an hour. If you work full-time, you take a $4,680 cut from your annual salary and (assuming your tips actually bring you up to the federal minimum) $10,400 in tips, for a total income of $15,080. Under Trump’s plan, you will no longer have to pay income tax on two-thirds of that income. Sounds pretty good, right?

Except now you barely pay income tax. If you are single and your income is less than $12,950, the IRS does not require you to file a return. If you are single and head of household and your income is less than $19,400, the IRS does not require you to file a return. You have to pay payroll taxes, but Trump hasn’t said anything about eliminating payroll taxes on tip income. It would be much more complicated and difficult.