Working for tips is a tough gig. A former server reflects on eight challenging years at a Maine hotel. During this time, income varied dramatically from night to night, with some shifts yielding $200 or $300 while others brought in half that or less. The pandemic added another layer of difficulty. With limited outdoor seating and reduced diners, making ends meet became increasingly tough.
The struggle faced by many tipped workers is highlighted by the choice they often confront come tax season: report all tip income or hide part of it to keep more money in their pockets. The former server emphasizes the difficulty of making the lawful choice, noting that around a third of tipped income went unreported from 2005 to 2018, amounting to approximately $8 billion annually. While the author does not condone the practice of underreporting tips, there’s an understanding of the pressures that drive coworkers to make the wrong call.
Fortunately, this year marks a turning point thanks to the recent tax-cut bill signed by President Trump. The new provisions exempt most tipped income up to $25,000 from federal taxes for the upcoming filing years, from 2025 to 2028. This change reduces the incentive for workers to underreport income, allowing families to keep more money legitimately. With reported incomes increasing, it may also ease the path to secure loans for cars or homes, providing much-needed financial relief.
However, the fight is not completely over. States retain the ability to levy taxes on tips, and more than half still do. This ongoing taxation keeps some workers in a position where hiding their incomes feels necessary. The hope is that more states will align with the federal policy that favors working families. A few states are already showing common sense, automatically adopting the new federal tax regulations. Notably, Michigan’s governor has signed legislation eliminating taxes on tips, illustrating a bipartisan effort toward providing relief for tipped workers.
In contrast, the author criticizes blue-state governors, including the governor of Maine, for not following suit. Despite calls for conformity with federal tax law, there has been no move to eliminate state taxes on tips. The rationale for maintaining this tax is weak—Maine would only lose an estimated $9.2 million in tax revenue. While that may seem significant to state coffers, it is a drop in the bucket compared to the financial burdens faced by tipped workers. Every dollar kept from these workers due to state taxes is a dollar they cannot spend on their families’ needs.
This issue transcends party lines. Even in states with Democratic leadership, there seems to be a missed opportunity to support working families. For instance, Arizona’s governor recently vetoed a bill aimed at aligning state policy with federal tax cuts, an action that appears contradictory given the calls for broad tax relief. Similarly, Wisconsin’s governor faces pressure over a similar proposal, with a veto likely given the current political climate.
The sentiment expressed is straightforward: ending taxes on tips is a necessary step that would significantly benefit millions of workers grappling with the effects of inflation and changing consumer spending patterns. As the former server aptly puts it, while the new federal tax provisions may no longer directly help them, there is a clear recognition of the ongoing need for state-level actions that would alleviate financial burdens for those still working in this demanding field.
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