But Trump’s “Big Beautiful Bill,” may not deliver the goods. As it stands, the newly enacted law would benefit only a small percentage of American workers overall, and exclude the lowest-income tipped workers. Workers will be able to deduct up to $25,000 annually from their taxable income, although it begins phasing out for individuals earning $150,000 per year, or $300,000 for joint filers.
The provision is emblematic of one the law’s defining characteristics: An emphasis on providing relief for middle- and higher-income Americans, while low-income families bear the brunt of dramatic cuts to food stamps and Medicaid, and are unable to fully benefit from key tax provisions. The legislation modestly expanded the child tax credit and indexed it to inflation, but it is not fully refundable, and thus the lowest-income Americans will be unable to receive the whole credit. Similarly, provisions ending taxes on overtime pay and a reduction to standard tax deduction for seniors would provide limited benefits to the lowest-income Americans who do not have sufficient tax liability to claim the deductions.
The idea is rooted in political considerations. Both Trump and his Democratic rival, former Vice President Kamala Harris, had expressed support for such a policy in an effort to win over swing voters in Nevada. Democratic lawmakers in Nevada have also embraced this policy; in 2024, Senators Jackie Rosen and Catherine Cortez Masto co-sponsored legislation to end federal taxes on tips. A bill by Nevada Democratic Representative Steven Horsford would eliminate taxes on tips, but also require restaurants to pay their tipped workers the current federal minimum wage for untipped workers, which is $7.25 an hour.
“Massive corporations and the super wealthy came out the big winners, and workers are getting scraps,” Pappageorge argued.
“If you talk to the average tipped worker, the idea of getting some relief is welcome. But we’re not sure what that’s going to look like,” Pappageorge said.
Certain low-income service industry workers might also be affected by both cuts to benefits programs and being unable to access the deduction on tipped wages. The law dramatically cut funding for the Supplemental Nutrition Assistance Program, or SNAP, and Medicaid, potentially resulting in millions of people seeing reduced benefits—or losing them entirely.
There is also uncertainty about how this change will affect the behavior of tippers, particularly as Americans are growing fatigued with tipping in general. Customers may not tip as much if they believe that their server will not need to pay income taxes on their tips, without necessarily differentiating between the different incomes of a waiter at a cheaper restaurant and one who works at an expensive one.
“It’s an example of how workers at the bottom could get doubly impacted by this. A lot of them are not going to get the benefit from the deduction in the first place, and … they may be subject to a blowback from the backlash against tips generally,” said Tedeschi. “That’s not fair to them.”
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