Imagine that you are sitting with a friend with a new job that gets tips, who is not very familiar with the world of taxes or political promises, and you want to explain clearly and patiently why President Donald Trump has again talked about his idea of eliminating income taxes over tips.
The “No Tax on Tips” promise is an idea that President Donald Trump has been promoting since 2023, when he was still a presidential candidate. Basically, what it proposes is that tips received by service workers, such as waiters, bartenders, bellhops, valets and others, should not be subject to federal income tax.
This means that if a server receives $100 in tips, they would not have to pay taxes on that money, and would keep it entirely. Currently, there are several states that do keep a part of that money in the form of taxes.
Why is Trump talking about this again?
On January 29, 2025, Trump mentioned this promise again at a rally in Las Vegas, a city where tourism and tip-dependent jobs are very important.
In his speech, the president said: “In the coming weeks, I will work with Congress to introduce a bill that cuts taxes for workers, families, small businesses and, very importantly, delivers on my promise. We will make it for you: no tip taxes.”
He also mentioned that if you are a waiter, bartender, valet, bellman, or even his caddy (the person who carries the golf clubs), the tips would be 100% yours, with no tax deductions.
How do tip taxes work today?
Currently, in dozens of states, tips are considered an official part of salary income, so, according to federal law, they must be reported and are subject to income tax.
For example, if a waiter earns $500 in tips in a month, that money is added to his base salary, and he must pay taxes on the total. This applies not only at the federal level, but also in many states, such as California, Texas, New York, and Florida, where tips are also subject to state taxes.
It’s unclear how Trump could implement such a tax change, because he can’t change the tax code on his own. He would need support from Congress to pass a law to change the way tips are taxed. Additionally, parts of the 2017 tax law (which he signed himself) are about to expire, which could open the door to changes to the tax system.
States where tips are taxed as of today
Although the idea sounds attractive, some economists argue that a more effective measure would be to increase the federal minimum wage for tipped workers.
Currently, the states in which tips are considered taxable wage income are: California, Texas, New York, Florida, Illinois, Pennsylvania, Virginia, New Jersey, and Massachusetts.
