Politics
Why ‘no taxes on tips’ isn’t what it sounds like
So far in Donald Trump’s second administration, Congress has capitulated to the President on every issue, effectively becoming a defunct body within our system of government.
One thing Congress has accomplished is Trump’s top legislative priority, known as the “Big, Beautiful Bill.”
While its drafting, contents and signing have been controversial, this bill, known as H.R. 1 in the House and SB-129 in the Senate, has received plenty of attention from both sides, who use it to bolster their talking points, knowing full well that almost no one has actually read the bill.
While Democrats have criticized the bill’s provisions, including making Trump’s first-term tax cuts permanent, many on the left concede that the “no taxes on tips” provision benefits the working class and offer vocal and written support for it through politicians and mainstream media outlets. The problem is that these supporters may not have read or understood that portion of the bill.
In the extensive document that is H.R. 1, the section regarding the removal of taxation on tips can be found about a third of the way through, in the first section under “Chapter 2,” labeled “DELIVERING ON PRESIDENTIAL PRIORITIES TO PROVIDE NEW MIDDLE-CLASS TAX RELIEF.” There, we find Sec. 70201, titled “NO TAXES ON TIPS.” This section, just over 400 words long, uses legal language typical of congressional bills, which, while necessary for clarity, can be difficult for those without policy experience or a law degree to comprehend fully.
The core of the bill can be summarized in three points:
—“There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual …”
—“The amount allowed as a deduction under this section for any taxable year shall not exceed $25,000.”
—“The term ‘qualified tips’ means cash tips received by an individual in an occupation which customarily and regularly receives tips …”
So, what do these three elements of the bill indicate? First, they reveal the key aspect of the “no taxes on tips” policy: there are still taxes on tips.
Yes, that’s correct. The bill allows a deduction for taxes paid on tipped income, not a removal of the tax collection process for individual earners from their weekly or biweekly paychecks. Instead, taxpayers must calculate the taxes charged throughout the year on just the tip portion of their income and report that to the IRS as a deduction. This complicates the process for several reasons.
The first issue is that tipped workers’ paychecks are less straightforward than those of traditional workers. To break this down, let’s start with the two types of tips: physical cash and those paid by credit or debit card. Both are considered “cash” under the bill’s definition.
At the end of service, some patrons may still leave cash on the table for the server or bartender, but most consumers pay with credit or debit cards, so tips are recorded in the system and paid out in the earner’s paycheck alongside hourly wages. Any cash given directly to the worker should be declared at the end of the shift. However, to avoid taxation, many tipped workers report earning zero tips.
For tipped workers, the first line on the W-2 provided by their employers at the end of the year reads like everyone else’s: “Wages, tips, other compensation.” Under this process, a tipped worker would need to calculate the percentage of their income that is hourly wage versus tipped hourly wage, which varies by state, and then determine their tax rate for each category.
Once the taxpayer navigates the complicated tax code to ascertain their tax rate, submitting the amount to receive a refund isn’t how the bill is structured. These taxes must be reported in the deduction section of the tax process, similar to gas receipts for work-related travel.
As noted, the limit on individual tax deductions is $25,000. This might seem unremarkable, since most tipped employees likely haven’t been taxed $25,000 in a year. What makes this cap noteworthy is that it matches the standard deduction most taxpayers take when filing their taxes.
Why is this important? While it is unlikely a tipped worker will receive $25,000 in tips in a year, it is also unlikely that someone in a tipped wage job will use the deduction process for other expenses that would push their total deductions above this threshold.
This means that if a tipped worker painstakingly calculates their tip-related taxes and finds they are below the standard deduction, they will take the standard deduction, rendering their efforts unnecessary.
A Budget Lab study from Yale University estimates there are about 4 million tipped workers in the United States. These 4 million people earn an average of $32,000 per year, according to government data.
In the big picture, this means that the number of people who will actually utilize the deduction in a way that results in a tax refund will be minimal, if anyone at all. Thus, “no taxes on tips” does not provide tax relief on tipped wages — not even close. This portion of the Big Beautiful Bill is a typical political maneuver: promise big and deliver small.
This isn’t a tax cut for servers and bartenders; it’s a talking point for politicians.
Trump and Republicans repeatedly echoed the phrase “no taxes on tips” on the campaign trail. But the bill doesn’t eliminate taxes on tipped wages as promised.
If Democratic candidates in the 2026 House and Senate races can effectively communicate this to voters, they can counter any legislative agenda items Republican candidates might promote.
Combining this argument with the permanent extension of Trump’s 2018 tax cuts, which harmed the middle class, could make the big, beautiful bill a liability for the GOP in the upcoming elections.
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Nathaniel Lautier is a political journalist based in Florida. He is currently completing a Bachelor’s degree in Political Science at Flagler College in St. Augustine. As a veteran of the United States Air Force, Nathaniel previously served as an intelligence analyst before pursuing a career in journalism.
For both new and longtime St. Petersburg residents — even those from neighboring cities across the Bay or closer to the Gulf beaches — an evening stroll through North Straub Park during Christmastime is a holiday must.
Checking it off our family’s list recently, we really enjoyed the new “St. Pete Holidays” display, and we clearly were not the only ones enamored with Christmas spirit, as at least 50 families were lined up waiting to see Santa in the park. The weather, as it usually is in the Sunshine City, was beautiful and the evening was a warm Winter delight.
But then I noticed something.
The city’s Christmas tree, a prominent part of its North Straub Park display, has, unless I’m missing something, changed. It was lovely, don’t get me wrong. But it wasn’t the same festive tree installed under Rick Kriseman. It wasn’t quite as bright and shiny.
It’s a silly thing to gripe about, especially when the new tree is perfectly acceptable — tall and festive. But it begs an interesting question: Can a single Christmas tree represent a Mayor’s entire first term in office?
It’s rhetorical because, of course, the answer is “yes.”
Ken Welch is a decent man and a pretty good politician. But he’s not as good a Mayor as the previous guys.
And that’s exactly why the tree symbolizes both the naughty and the nice of Ken Welch’s mayoral term.
His supporters will point to the top of my column and question why I am complaining. It’s a fair point. There were hundreds of people enjoying the display and activities. It was a beautiful display, with an arguably even more beautiful backdrop in Tampa Bay, the St. Pete Pier and the historic Vinoy Hotel and Resort.
But that’s exactly my point. There will always be hundreds of people in downtown St. Pete in December, because we are blessed to have a picturesque downtown, bustling businesses, and temperate weather that fosters people to come and enjoy whatever display from whatever mayoral administration.
There are so many things going right in this city, but they are happening, largely, in spite of — not because of — our current Mayor.
That’s really why Charlie Crist, if he does choose to run, wants to go to City Hall. He believes St. Petersburg could be something more than what it is.
It could, even more than it already is, be that bright and shiny Christmas tree of a city.
But the truth is, Ken Welch is not the executive or the deal maker we need in 2027 to move the city forward.
He’s rushing to get a development deal done for the Tropicana Field site after the one he had previously brokered crashed and burned, and he’s trying to give it to Cathie Wood, one of his biggest cheerleaders.
Wood, along with developer Casey Ellison, submitted a proposal in October to redevelop the site in phases, including 3,701 new homes, 863 of them affordable units, 618 affordable units for seniors, and 444 workforce units. The remaining 1,776 would be market-rate units. The plan also calls for more than 1,500 hotel rooms, all while reserving nearly 45% of the site for public parks, culture and civic spaces.
It’s not a bad pitch. In fact, it’s quite good. But it was unsolicited, and the Mayor’s quick deference to it prompted pushback, leading him to delay the timeline by pushing back publication of a 30-day public notice until early January. His move came after pushback from both the City Council and the development community.
Wood, founder and CEO of ARK Invest, is a business savant successful enough to become a billionaire. She should be smart enough to know that no matter how bright and shiny her proposal is, it will not move forward until after the 2026 mayoral election.
That means, if she’s overly connected to Welch and he loses, her proposal will be as dead as a Christmas tree in late January.
And if she’s not sure … or if she’s somehow hedging bets. Look no further than the precedent that Welch himself set.
One of Welch’s first major acts as Mayor was to cancel the previous Request for Proposals and selection issued by former Mayor Rick Kriseman in 2020 to redevelop the Trop site, instead replacing it with his own process.
There is no reason to believe that a new Mayor — Welch only seems to be drawing opposition out of frustration with his first term — wouldn’t do the same thing. Even if Welch were to fast-track Wood’s Trop proposal, a new Mayor could come in and cancel it to start anew.
Maybe Wood’s proposal is the shiniest Christmas tree out there, and maybe it’s worthy of the city’s selection. But the city deserves to evaluate alternatives.
In 2026, voters’ll get to do exactly that with the Mayor’s office.
So stay tuned, and go check out the new tree.
Editor’s note: Peter Schorsch is the husband of Michelle Schorsch, who is the chair of “St. Pete Shines,” a political committee supportive of a possible Charlie Crist bid for St. Petersburg Mayor.
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