Tipping is a major source of income for many service industry workers, but tips are currently subject to federal income tax. Both Donald Trump and Kamala Harris have recently proposed plans to eliminate taxes on tips, offering relief to workers who rely on gratuities. These proposals aim to give workers the chance to keep more of their earnings without federal tax deductions.

Trump’s Plan

Donald Trump introduced the idea in mid-2024 as part of his campaign, arguing that service workers should not have their tips taxed by the federal government. He emphasized that workers in industries like hospitality are being “hurt badly” by these taxes and deserve to keep more of what they earn. Trump’s plan gained momentum, especially in states like Nevada, where tipped workers play a key role in the economy. A bipartisan bill to eliminate tip taxes has been introduced by congressional Republicans, and it’s expected to gain further traction depending on the outcome of the 2024 election.

Read more about Trump’s plan to eliminate taxes on tips here.

Harris’ Proposal

Vice President Kamala Harris followed shortly after Trump, supporting a similar proposal to eliminate income tax on tips. Harris has received strong backing from labor unions, such as the Culinary Union, which represents many tipped workers in Nevada. Harris’ plan not only targets the removal of federal taxes on tips but also seeks to address the wider issue of wage disparities between tipped and non-tipped workers. The move is seen as a key policy pitch to attract support from service workers in key battleground states.

Learn more about Kamala Harris’s proposal here.

Potential Timeline

The timeline for implementing these changes will depend largely on the outcome of the 2024 election. While both Trump and Harris have voiced their support for eliminating tip taxes, lawmakers still need to finalize details on how the exemption would be applied and what impact it may have on federal programs. Early indications suggest the plan could be introduced within the next few years, with potential legislation advancing in 2025.

The Impact

The proposal to eliminate taxes on tips is popular among service industry workers, particularly in areas where tipping is a large part of the economy. Critics, however, point out that removing taxes on tips could reduce funding for programs like Social Security and Medicare, which rely on payroll taxes. Additionally, while this plan may benefit low- to mid-income workers, higher earners in industries with significant tip income could also see substantial tax breaks.

Conclusion

As proposals to eliminate taxes on tips move closer to potential legislation, service workers and their employers are paying close attention. Both Donald Trump and Kamala Harris have made strong pitches to eliminate federal taxes on tips, which could result in significant savings for many workers. However, the full scope of the plan and its long-term effects are still under discussion.

For personalized advice on how these changes could affect your taxes, consult USA Tax Solutions for expert guidance.