Dive Brief:
- The Senate passed a package of tax law changes and spending cuts on Tuesday including a No Tax on Tips provision drawing a mix of support and criticism from Restaurant industry trade groups.
- The legislation package, once called One Big Beautiful Bill, includes a version of No Tax on Tips that exempts up to $25,000 in cash tips from federal income tax for workers in tipped occupations. The provision impacts workers make under $150,000 a year individually or under $300,000 a year as a household, and expires at the end of 2028.
- While the National Restaurant Association expressed support for the tips exemption, the Independent Restaurant Coalition noted that the provision excludes service charges, which some operators charge in lieu of tips or in jurisdictions where tip pooling is not allowed.
Dive Insight:
The IRC said the bill benefited some job classes over others and that the No Tax on Tips provision might have unforeseen negative consequences.
Erika Polmar, president of the IRC, said that not counting service charges was “ultimately unfair to the line cooks, dishwashers, porters, and prep staff that are vital to independent restaurants. We urge Congress to amend the tax code so all gratuity-based income—tips and service charges—earns the same relief, giving businesses a single, stable set of rules.”
The IRC also warned that analyses of the law indicated “the proposal would incentivize employers across industries to prompt for tips and reclassify workers to avoid paying minimum wage.”
Sean Kennedy, executive vice president of public affairs for the NRA, said he was pleased with the tip provisions and praised other portions of the law in the NRA’s public statement.
“The inclusion of permanent policies for 199A qualified business income deduction, full expensing of capital investments, and the return of depreciation and amortization in the calculation of business interest expense will give restaurant operators working capital to invest,” Kennedy said.
But there are other measures included in the bill that could impact restaurants. The law expands funding for Immigration and Customs Enforcement, and may result in more deportations of undocumented workers, which the Economic Policy Institute estimates would stymie economic growth. ICE targeted restaurants earlier this year, but then paused arrests in June at restaurants, farms and hotels in response to employer concerns over the impact on these key industries.
Broadly, the bill cuts spending for non-military, non-law enforcement government programs, including Medicaid, but the specific provisions of the law are subject to further revision in the House of Representatives. That process could result in significant changes to the bill before it becomes law.
