Kelley R. Taylor, senior tax editor at Kiplinger, said in an op-ed that the No Tax on Tips bill could enable millions of tipped workers to retain more of their cash earnings.
"If the bill becomes law, it could mean that millions of tipped workers get to keep more of what they earn, at least when it comes to cash tips," said R. Taylor, Senior Editor - Tax.
The Internal Revenue Service (IRS) mandates that all tips received by employees be reported as taxable income. This requirement applies to cash tips, tips from credit card payments, and amounts received through tip pools. Employees must report tips totaling $20 or more in a month to their employer by the 10th day of the following month. These tips are subject to federal income tax, Social Security tax, and Medicare tax.
A survey conducted in 2021 by the Pew Research Center revealed that 16% of Americans have earned income through online gig platforms. Of these gig workers, 58% indicated that the money they earned was essential or important for meeting their basic needs. These findings highlight the reliance many individuals have on gig work for financial stability.
According to the U.S. Bureau of Labor Statistics, as of May 2023, the median hourly wage for waiters and waitresses, including tips, was $14.00. In some states, tipped employees may earn a base wage as low as $2.13 per hour, with tips making up the difference to reach the federal minimum wage. This structure means that tipping policies significantly impact total earnings for many service workers.
Taylor is a Senior Editor - Tax at Kiplinger with over 15 years of experience in legal, financial, and business journalism. She specializes in making complex tax and legal subjects accessible to a broad audience.