Trump’s Pledge to Leave Cash Tips Untaxed Doesn’t Hold up

Its different for the lowest-paid service workers because they are paid something called the tipped minimum wage. The federal hourly minimum wage, unchanged for 15 years, is $7.25, which is measly enough, but employers may pay tipped workers an evenmeaslier $2.13 provided tips bring their income up to the hourly minimum. When cash tips predominated, these workers were perhaps tempted to under-report tips to the boss, thereby compelling him to make up the difference. But these days (especially in fast-food restaurants, which is where most restaurant servers work), electronic tip screens predominate, allowing your boss and the IRS to keep careful track of tips.

Let’s say you’re a restaurant server being paid the federal subminimum wage of $2.25 per hour. If you work full-time, you pull down $4,680 per year in wages and (assuming your tips really do bring you up to the federal minimum) $10,400 in tips, for a total income of $15,080. Under Trump’s plan, you will no longer have to pay income tax on two-thirds of that income. Sounds pretty good, right?

Except you’re barely paying income tax now. If you’re single and your income is below $12,950, the IRS doesn’t require you to file. If you’re single and a head of household and your income is below $19,400, the IRS doesn’t require you to file. You do have to pay payroll tax, but Trump didn’t say anything about eliminating payroll taxes on tipped income. That would be much more complicated and difficult.

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