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Home World News Africa

Restaurant workers say ‘no tax on tips’ undermined by benefits cuts

July 2, 2025
in Africa
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Restaurant workers say ‘no tax on tips’ undermined by benefits cuts
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United States President Donald Trump’s big tax and spending bill has faced backlash from both Democrats and fiscal hawks in his own party. But one proposal that has received rare bipartisan support from the start — eliminating taxes on tips.

The Senate bill passed on Tuesday, which mirrors the House bill passed last month, would deliver this campaign promise from Trump and had also been proposed by his Democratic opponent, former Vice President Kamala Harris.

The House plan lets workers deduct all reported tips from their taxable income, while the Senate version sets limits — $18,500 for individuals or $25,000 for joint filers — and phases it out for higher earners. The tax break would expire at the end of 2028.

If this bill passes, filers could deduct some or all of those tips starting in 2026.

Economists forecast that cutting tax on tips could increase the federal deficits by $100bn over the next decade.

Many restaurant workers continue to earn the federal tipped minimum wage, or subminimum wage, of just $2.13 per hour nationally. It is slightly higher in places like New York at $3.55 per hour. The law assumes that tips will bridge the gap to reach the $7.25 federal minimum wage.

A survey cited by the White House and conducted by a fintech firm found that 83 percent of restaurant workers support a no-tax-on-tips policy. Trump’s plan has been endorsed by the National Restaurant Association.

“The inclusion of the No Tax on Tips and No Tax on Overtime provisions recognises the value of our dedicated workforce. More than two million tipped servers and bartenders stand to benefit, while the overtime measure rewards the commitment of over 13 million hourly team members across the sector,” Michelle Korsmo, president and CEO of the National Restaurant Association, told Al Jazeera in a statement.

The bill at the surface promises to put more money in the pockets of servers, bartenders, and other tipped workers. But it has been criticised by worker-centric advocacy groups and restaurant workers themselves, who caution against embracing it too quickly because it also comes with cuts to Medicaid and SNAP, which workers in the restaurant industry disproportionately rely on.

“That is like one of like the biggest fears I have right now. I rely on SNAP myself. I rely on Medicaid. At one point, I didn’t have insurance because of the whole sub-minimum wage, ” Jessica Ordenana, a server at a Chili’s Restaurant in Queens, New York told Al Jazeera.

According to One Fair Wage, about 66 percent of tipped workers in the US don’t earn enough to pay federal income tax, so eliminating tax on tips wouldn’t help the majority of restaurant workers.

To put this in perspective, a worker earning $2.13 per hour, working 40 hours a week for 52 weeks, would earn just $4,430.40 annually. Employers are legally required to make up the difference if tips don’t bring workers to $7.25/hour, totalling $15,078 per year. Federal income taxes must be paid by those who make more than $14,600 annually. Many workers still fall short due to inconsistent schedules and unreliable tipping.

Work requirements complications

Restaurant tipped workers overwhelmingly rely on services like SNAP and Medicaid, and will now face new work requirements to get them.

For instance, the “One Big Beautiful Bill” includes a Medicaid work requirement that obligates able-bodied adults aged 19 to 64 to work at least 80 hours per month to remain eligible.

For many restaurant workers, this is simply not feasible. Not because of unwillingness, but because their hours depend on consumer demand.

According to Harvard Kennedy School’s The Shift Project, which studies workplace trends, one in five service sector workers reported having not as many hours as they would like and saw a 34 percent fluctuation in the number of hours week to week.

“I’m actually having a hard time at Chili’s because they went from giving me my full like four or five days a week, to now just one day a week. It really varies week to week,” Ordenana said.

“When I ask for another day on the schedule [the manager] tells me, yeah, yeah sure. And then they don’t even put me on the schedule. So last week, I didn’t work at all,”  Ordenana said.

Demand for eating out has started to slump as Americans tighten purse strings in the face of a slowing economy and uncertainty over the impact of Trump’s tariffs.

Consumer Price Index data showed that spending on eating out was flat for three months from February to April and has started to decline heading into the middle of the year.

Consumer spending is projected to drop by 7 percent over the middle of the year, according to KPMG’s Consumer Pulse report.

As a result, One Fair Wage estimates that 45 percent of restaurant workers currently enrolled in Medicaid could lose their health insurance because of the possible downturn in hours because of slumping demand.

“More tipped restaurant workers would lose their Medicaid than would gain small tax benefits. This is not the right solution,” Saru Jayaraman, founder of the advocacy group One Fair Wage told Al Jazeera.

“Why are these workers on Medicaid to begin with? Because they earn a sub-minimum wage and can’t afford to take care of themselves.”

SNAP benefits face a similar threat. The Center on Budget and Policy Priorities, a left-leaning think tank, forecasts that the tax bill could lead to as many as 11 million people, including restaurant workers, losing access to critical benefits. The House bill would cut $300bn from SNAP over the next 10 years and the Senate bill would cut $211bn.

“Those cuts have to come out of benefits or eligibility. There is just no way that cuts to administrative costs, to streamline waste, fraud, and abuse, or whatever the talking points are about thinking. Those are benefits to eligible people. To achieve that kind of savings, you have to cut benefits to people. There’s no way around it. And that’s devastating,” Ed Bolen, director of SNAP State Strategies at Center on Budget and Policy Priorities, told Al Jazeera.

Nationwide, 18 percent of restaurant workers rely on SNAP benefits, including Ordenana.

“How am I going to eat? How am I gonna survive? How am I going to pay rent? And then on top of that, I might lose benefits? How is this happening in America?”  Ordenana asked rhetorically.

 



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Tags: Business and EconomyDonald TrumpeconomyfoodNewsPoliticsServices IndustriestaxUnited StatesUS & Canada
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