{"id":2523,"date":"2025-10-13T23:12:09","date_gmt":"2025-10-13T23:12:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ca\/2523\/"},"modified":"2025-10-13T23:12:09","modified_gmt":"2025-10-13T23:12:09","slug":"why-no-tax-on-tips-may-have-limited-benefits-for-california-workers-2","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ca\/2523\/","title":{"rendered":"Why \u2018no tax on tips\u2019 may have limited benefits for California workers"},"content":{"rendered":"

\"\"<\/a>Waiters at Alamo Mexican Cafe. (File photo by Ken Stone\/Times of San Diego)<\/p>\n

This story<\/a>\u00a0was originally published by CalMatters.\u00a0Sign up<\/a>\u00a0for their newsletters.<\/p>\n

No tax on tips, a campaign promise by President Donald Trump, is now part of the U.S. tax code \u2013 but experts across the political spectrum see limited benefits for California workers.<\/p>\n

The Treasury Department and the IRS late last month released details of their proposed regulations around the new tax deduction, which Republicans included in their spending bill.\u00a0<\/p>\n

Under the provision, taxpayers who make less than $150,000 a year, or $300,000 if filing jointly, could deduct up to $25,000 in tips from their federal income taxes, regardless of whether they itemize their deductions. Among the nearly 70 occupations that qualify are restaurant servers, gig workers, barbers, cosmetologists and golf caddies. The deduction is effective starting this tax year and runs through 2028. <\/p>\n

The public can\u00a0submit comments<\/a>\u00a0to the IRS until Oct. 22.\u00a0<\/p>\n

Workers and experts who spoke with CalMatters about no tax on tips had more questions than answers, because income tax outcomes can vary significantly depending on people\u2019s circumstances. Are they single, married filing separately or married filing jointly? Do they have kids? Do they deduct mileage or other expenses? Experts also said the provision brings up issues of fairness: Some low-wage service workers will get deductions that workers with comparable wages in other industries won\u2019t get.\u00a0<\/p>\n

\u201cI would be hard-pressed to think of a stupider tax policy that\u2019s become law,\u201d said Brian Galle, a law professor at UC Berkeley whose focus includes taxes.\u00a0<\/p>\n

Galle said the provision makes taxes even more complicated. He also said it could lead some employers to cut workers\u2019 pay \u201cby the full amount of tax savings.\u201d\u00a0<\/p>\n

Meanwhile, polls show\u00a0consumers are tired of tipping<\/a>, so they might stop doing so if they assume that all tipped workers will now be able to deduct their tips, Galle and other experts said.\u00a0<\/p>\n

In addition, for some workers the deduction may not be enough to offset the negative effects of other aspects of the Republicans\u2019 spending bill.<\/p>\n

\u201cIt\u2019s a bit of a distraction from the overall bill and how disproportionately it\u2019s helping rich folks at the expense of low-income folks,\u201d said Kayla Kitson, senior policy fellow at the California Budget & Policy Center, a left-leaning think tank. \u201cMany low-income tipped workers will likely be harmed by the cuts to\u00a0health care<\/a>\u00a0and\u00a0food assistance<\/a>\u00a0and the failure to extend enhanced premium tax credits.\u201d<\/p>\n

What workers think<\/p>\n

Dell Randle, a self-employed barber in Fairfield, a Bay Area suburb, thinks he could take advantage of the new deduction. But he doesn\u2019t know how much in tips he will actually receive.<\/p>\n

\u201cIt\u2019s kind of hard, because everybody doesn\u2019t tip,\u201d he said. \u201cIt\u2019s hit or miss, there\u2019s no consistency. I might go a whole week without someone giving me a tip.\u201d<\/p>\n

Also, business has been slow since the pandemic\u2019s onset five years ago, because lots of new barbers have oversaturated the market since then, he said. Data from the state confirms that: Barbers licenses issued this fiscal year totaled 42,958, a 33% increase from fiscal year 2019-20. Business has been especially bad in the past several months, Randle said.\u00a0<\/p>\n

\u201cThe benefit of this (deduction) will depend on how good business is,\u201d he said. \u201cBusiness is slow, so I can\u2019t count on something that\u2019s not there.\u201d<\/p>\n

That\u2019s in line with a\u00a0Yale Budget Lab analysis<\/a>\u00a0that not taxing tips may not benefit more than a third of tipped workers because they do not make enough to owe income tax in the first place.<\/p>\n

Elsewhere in the Bay Area, Crissie Brown said she makes about $95,000 to $100,000 a year from being a server at two different restaurants in Alameda. She said she\u2019ll probably have to hire a tax preparer to see if she could benefit from the new deduction, but she\u2019s skeptical because she doesn\u2019t believe the Trump administration is \u201clooking out for the working class at all.\u201d\u00a0<\/p>\n

\u201cWith the economy, I still live pretty poorly,\u201d Brown said. \u201cI can\u2019t even afford to pay what I owe (in taxes) now.\u201d She said keeping tips tax-free \u201csounds good, but I have a feeling it will bite us\u201d in the end.<\/p>\n

Only tips that are given voluntarily by customers will count toward the deduction. That means restaurant servers will not be able to deduct service charges that some restaurants automatically apply to diners\u2019 checks.\u00a0<\/p>\n

California food service workers\u2019 reliance on tips vary. In September, 27% of bartenders\u2019 income came from tips, according to payment-processing company Square, which analyzed payroll data from more than 100,000 employees. Full-service restaurant workers\u2019 tips made up about 17% of their income last month, just like cafe workers. For workers at quick-service restaurants where there is no table service, tips were about 11% of their income.<\/p>\n

Trump said<\/a>\u00a0he got the idea for no tax on tips from a Nevada restaurant server who complained about taxes she had to pay on tips. The union that represents Las Vegas food and hospitality workers is mostly supportive of the new deduction, though it has some complaints about the details.<\/p>\n

As for gig workers, they might see uneven benefits from the new deduction, said Sergio Avedian, a ride-hailing driver in Los Angeles and a contributor at the gig-work blog Rideshare Guy.\u00a0<\/p>\n

\u201cFor drivers, who often rely on tips to offset low base pay, this could feel like an immediate raise,\u201d Avedian said. But he added that the new deduction may not benefit drivers much because he thinks only 15% to 20% of Uber and Lyft riders tip. He said the deduction could be more beneficial for food-delivery drivers, such as those who deliver for DoorDash, while it would probably not help Amazon Flex workers who don\u2019t typically get tips.\u00a0<\/p>\n

More than 53% of food-delivery drivers\u2019 income is from tips, according to 2024 data from Gridwise Analytics, which is based on information from more than 260,000 drivers. Tips made up only about 10% of ride-hailing drivers\u2019 pay, while for couriers who deliver packages that number was less than 4%.<\/p>\n

Avedian also said gig workers have to pay self-employment tax, so that could eat into any benefit of the new tip deduction \u2014 again, if the workers qualify for it at all, depending on their income.\u00a0<\/p>\n

Almost 40% of taxi and ride-hailing drivers nationwide are on Medicaid or receive health care subsidies, according to\u00a0Center for American Progress<\/a>, a left-leaning think tank. In California, those drivers could be among the\u00a0more than 1 million people expected to lose Medi-Cal<\/a>coverage under new work-hour requirements in the Republican spending bill.<\/p>\n

Fairness and other issues<\/p>\n

The uneven effect of the deduction will apply to other industries, according to analyses by the\u00a0Cato Institute<\/a>, a libertarian think tank, and\u00a0American Action Forum<\/a>, a right-leaning think tank. Both think tanks criticized no tax on tips during the 2024 presidential election, when both Trump and former Vice President Kamala Harris proposed it. They said it has \u201cno other redeeming quality\u201d and that only some low-wage workers will get the tax deduction.<\/p>\n

Another way the deduction is unfair is that it has a marriage penalty, said Andrew Gradman, a tax lawyer in Los Angeles County.\u00a0<\/p>\n

\u201cIf two tipped workers are married, they can only claim $25,000, while a single person would get to claim $25,000,\u201d he said.<\/p>\n

Another possible problem: Because the new deduction introduces even more complexity to tax law, some workers risk committing tax fraud or being accused of it, Gradman said.\u00a0<\/p>\n

If someone works for an institutional employer, \u201cthey\u2019re going to have accountants who will do the heavy lifting,\u201d he said, and that could help taxpayers know whether they qualify for the deduction. \u201cIf you get your paycheck from Patreon or whatever, it\u2019s gonna be burdensome.\u201d<\/p>\n

CalMatters<\/a>\u00a0is a nonpartisan and nonprofit news organization bringing Californians stories that probe, explain and explore solutions to quality of life issues while holding our leaders accountable.<\/p>\n

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