Would Trump’s ‘no tax on tips’ plan actually help Nevadans?

Athena Young has spent more than a decade developing her skills as a server. She knows how good she is now – because of the tips she receives while working at The Kitchen at Atomic.

If those tips weren’t taxed, she said, she’d be better able to support herself and her child.

“I’m good at making tips. I’m good at serving. So for someone to take that away from me when it was pretty much a gift for my services – it’d be great if we didn’t tax it as much,” she said. “I have a kid at home. I could definitely use that money for other things.”

A proposal growing in popularity could see an end to federal taxes on tipped income that Young and other workers receive. But experts say the change would bring nominal impact to most workers and is not the best solution to help working families.

‘A really great proposal’

Former President Donald Trump announced the plan to nix taxes on tips while visiting Las Vegas in June, and since then has made it a big part of his 2024 presidential campaign.

While some Democrats and union leaders have called the proposal a pandering move for votes, others – including Democratic members of Congress in Nevada – have nonetheless signed onto bills in the House and Senate.

Members of Congress introduced the “No Tax on Tips Act” in the Senate side and the “Tax Free Tips Act of 2024” in the House that would amend the Internal Revenue Code to exclude tips from the federal income tax.

The two bills differ on payroll taxes, which are used to fund Social Security and Medicare and paid for by the employer and employee, while income tax responsibility falls on the employee. The Senate’s version includes payroll taxes while the House version exempts them. Both would only apply to tipped workers who are employed. Buskers and contracted workers, for instance, would not be included.

Republican vice presidential nominee JD Vance told the Review-Journal on Tuesday that servers are struggling to get by and that Republicans’ proposal would lower their taxes and make it easier for them to report income.

“I think it’s a really great proposal,” the Ohio senator said. “I think it’ll be great for Nevada, maybe more than any other state in the union, because you guys have such a service-built economy here.”

Elected officials on both sides of the aisle in Nevada, whose workforce relies heavily on tips, have expressed support for the legislation. Republican Gov. Joe Lombardo endorsed it, and Nevada Democratic Sens. Jacky Rosen and Catherine Cortez Masto joined in the legislation.

Rep. Dina Titus, D-Nev., is the only Democratic member of Congress in Nevada who hasn’t given the proposal a ringing endorsement. While she doesn’t oppose it, Titus said the proposal can be improved upon to make it more equitable. She’d like to see it coupled with an increase in minimum wage.

“I think you just can make it fairer and better,” she said. “If you’re gonna work on something, let’s work on something that’s real. And that has a chance to get through and can make a difference, not just something you throw out there that sounds good to try to pander to some votes.”

Culinary Local 226, representing about 60,000 hospitality workers in Nevada, initially disregarded Trump’s proposal as a “wild campaign promise” — but weeks later, the union called on lawmakers to support the Congressional bills. Union officials say they took the bipartisan support as a signal to elevate other policy solutions, such as changing tip allocation rates some businesses use to simplify tip reporting and taxation.

“We still say it’s a starting point,” Secretary-Treasurer Ted Pappageorge said. “The idea that somehow taxes on tips is going to be wiped out is ridiculous and tip earners aren’t looking to escape taxes. They just want fair taxes. But we think the starting point is to look at tips for what they are.”

Workers react

Many tipped workers said they see cutting taxes on tips as a way to keep more money in their pockets and not worry about how to report the additional income. Cesar Reyes, a barber and manager at Downtown Vintage Barbershop, said he liked the proposal for its convenience.

“It’s hard to keep track of what you’re getting,” Reyes said. “Some things are cash, some things are card. I don’t really know what you’re getting taxed on.”

Guadalupe Anderson, a food pantry worker at Westgate resort-casino, said she used to work as a busser earning about $14 an hour plus tips from servers. But the tipping process was complicated by union rules that say bussers cannot ask the servers for a cut of their tips, only receive it from them. It bothered Anderson to see small amounts getting taxed, she said.

“I feel like they don’t really see how hard we work, and we still have to pay money out of our tips to the IRS,” Anderson said. “I wasn’t happy. Being in the food pantry, I get paid what I get paid, and they don’t take (extra) money out of it.”

Dean Howard, a bartender at Atomic Liquors, said he doesn’t think the proposal would make much of a difference, at least for workers in Nevada.

“The way I look at it is, it doesn’t matter if I’m a good server. If I’m a good bartender to people and I take care of people, I’m going to make my money either way,” he said.

Howard previously worked as a server in Florida where he was making $2.18 an hour plus tips, he said.

“Damn sure I don’t want you taxing my tips on $2.18 an hour, because I need that tip money to live,” he said. “But out here, we make a pretty decent hourly wage, and we’re still getting good tips.”

He doesn’t mind paying taxes, he said.

“Do I want more money in my pocket? Of course,” he said. “There’s got to be a level of fairness to it.”

Nominal gains

Economists and tax experts say the money returned to the worker may be nominal and would not be the best way to help families. The median individual income in the Las Vegas region is roughly $50,800, and many of those workers depend on tips, according to Andrew Woods, director of the Center for Business and Economic Research at UNLV.

Nevada is one of seven states without a sub-minimum wage option for tipped workers. Silver State workers earn at least $12 per hour, while other states allow employees to pay their workers as low as $2.13 hourly if they earn tips on the job.

Woods said for many, their earnings and the tax credits they qualify for result in more tax returns than tax bills.

“I don’t know if, long term, the majority of people would even see the benefit,” Woods said. “They might see initially in terms of what they take home, but at the end of the year, when it all evens out, they might not see any gain.”

He also said he’s concerned the policy would discourage employers from paying fair wages. Customers may react negatively to increased emphasis on tips at a time of high inflation and discussions of the extent of tipping culture.

Some have pointed out changing the tax code could add more confusion. Francine Lipman, a tax law expert at UNLV’s William S. Boyd School of Law, said if workers don’t report their tips, their gross income could appear much lower than reality – affecting their ability to qualify for some mortgages and other loans, to contribute more to retirement savings and to get more in unemployment benefits.

“I think that will really hurt people, especially working families who have to rely on borrowing even for a rental,” Lipman said.

There’s also a fairness issue, she said. A lot of industries where workers aren’t tipped, such as fast food restaurants like McDonalds, would not see the benefit.

“This is probably not the way to try to help working families,” she said.

‘A better solution’

“A better solution for everybody is really increasing the minimum wage so people have a livable income,” Lipman said. “And that’s reliable income that they can take to a bank, and a bank says that’s your salary, that’s what you’re getting every week.”

Banks like stable income, Lipman said.

An increase in the minimum wage to $15 by 2025 could impact nearly 500,000 workers in Nevada, according to the Economic Policy Institute, and would increase the average annual wage by nearly $2,000.

But Lipman said there is no perfect solution.

“If there was, it would be implemented, and a lot of states are increasing minimum wage to try to combat this issue,” she said.

Contact McKenna Ross at mross@reviewjournal.com. Follow @mckenna_ross_ on X. Contact Jessica Hill at jehill@reviewjournal.com. Follow @jess_hillyeah on X.