A couple of weeks ago, Kamala Harris pitched the idea of "no taxes on tips" - an idea that Donald Trump claims that she stole from him. My question: why is this considered a good idea by either?
Baristas and other counter help probably don't earn enough in tips to make a difference. But waiters and bartenders at those "white table cloth" joints bring in some big bucks on tips. I know quite a few and they make a LOT of money (most of their incomes!) on tips.
I was doing a free-lance video gig at university a few years back. This was at a program for soon to be Med School graduates. I got to know one of them -who worked part time at one of these high end restaurants. I congratulated him on his upcoming graduation - told him that he could go out there and make some big bucks as a doctor! He told me that for the immediate future he'd be looking at what would effectively be a cut in pay. He said that it was not uncommon for him to bring home $500 in a single night (especially when corporate/office or wedding parties were involved).
To me, this idea seems to be granting a whole lot of workers a pass on paying taxes. That both Harris and Trump seem to agree with the idea just stuns me. What am I missing here?
I'm fine with it. $500 might seem like a lot but that's from a dollar here and there directly from patrons who have already been taxed on that money from their paycheck. What about the band playing that night, are we going to reach into their tip jar too? And that's one example, not everyone is working swanky cocktail bars or corporate events. Servers depend on those tips to offset their low/average wages. In Europe they simply pay their servers enough so they don't need tips.
It wouldn't end up bringing in a significant amount of tax money for the harm it would do to low/average wage workers. They just wouldn't report it. And then the IRS hounds more low-wage workers. Not worth the trouble.
Rather go after the people and corporations who have enough money to be taxed and not feel it. Or churches.
@porkchopbob Income is income - period. Sales rep's and freelancers don't have a concrete salary and must file (usually, quarterly). There is (or was?) a "cutoff" rate on earnings - high school kids with part-time jobs are usually exempt when they earn less than (I forget the actual current limit) of $2 - 3,000 or so. They still have to file with the IRS.
With waiters (for example) - they're generally taxed on their SALES - and fairly lenient on that. The IRS presumes a that people are fair to half-assed tippers to begin with. Thus, instead of taxing the waiter at 20% of their sales (the current, suggested rate?), the IRS seeks only something like 10% (number might've changed so don't shoot me). Many people (ahem) tip a lot better than that. Sympathetic to waiters, I always tip in cash. Many others do, too. So if a waiter brings you a burger and fries that cost $15, he/she will only be required to report a tip of only $1.50 or so. I know they get stiffed or severely under-tipped at times (less than most of the time?) but quite often, they get tipped well over what Uncle Sam expects.
Devil's advocate question: If a person pays NO income taxes - should that person qualify for stuff like unemployment and even social security down the road?
FYI - I have a cousin who just kinda forgot to pay his taxes for several years. The IRS currently has him bent over a barrel naked - no KY anywhere in sight. I collected my late father's SS benefits when I was a teenager. About 20 years ago (and 25 years after the fact) SS sent me a letter saying that they had over-paid me by $500. I didn't keep my records for that long (also, a house fire ate some of them) so I could not prove that they did not over pay me. They said that they DID NOT have to prove that I had been over-paid. I had to pay them their $500. The gummit wanted their money ... they did not cut me any slack. Can't fight City Hall ... or the Treasury Department, I suppose.
Bands tip jars? Oh, yeah! This use to be an under the table kinda gig. More and more club owners are 1099'n musicians these days. The tip jar is probably safe but most clubs pay the band their standard rate ($100 a man ... for the past 100 years!). I know a lot of guys who are gonna be in deep doo-doo if the IRS decides to go retro on musicians!
I understand it's income*, I've worked for a living. But it wouldn't be that much lost tax money from a tax bracket that could certainly use some relief. Most municipalities generate revenue from homeowners and business, and at the Federal level the loss would be hardly be felt at all. Servers still get a paycheck. I don't have a problem with it, more money for some people and less work for the IRS. I'm sure keeping the hand out of someone's tip jar could be offset by slight increasing taxes on inheritance or capital gains.
The IRS tends to go after people who cannot afford to fight their case. The IRS itself doesn't have the funds or man-power to get tangled up in court for years with people who can hide their money. That's why rich Republicans got all butthurt with the 10-year plan to re-staff it after 30% of employees retired over the past 5 or so years.
Also, freelancers don't have to file quarterly, they can pay the year in full in April. There's a small penalty, but it's worth avoiding the paperwork and estimates since you can actually invest that money and grow it during the year whereas the IRS doesn't pay you interest on over-payments.
I'm fine with not taxing tips, in sure they're under reported. Corporations rip us off for far far far more than the tipsters.
However, if someone wants to report their tips as taxable income to up their soc security, let them!
Now that I've been a Texas resident for 2-1/2 years, I 100% support no taxes on tips. The minimum wage here is a most ridiculous $7.25/hour. No matter where you are living, no matter how much you pay for rent, NOBODY can expect to afford rent, utilities, gas, food, a running automobile on $7.25/hour. Personally I think it's highway robbery to take more of their income by taxing tips.
As someone who did ten years in the business, in various roles, I can assure you that most servers and bartenders I worked with NEVER reported their cash tips on their taxes.
As for no taxes on overtime, that trump floated, red herring.
Project 2025 calls for ELIMINATING overtime pay.
