Eliminating Taxes on Tips: The No Tax on Tips Act
Background
The No Tax on Tips Act, introduced by Senator Ted Cruz (R-TX), aims to amend the Internal Revenue Code and exempt cash tips from taxation.
Rationale
The bill's proponents argue that tips represent a form of earned income and should not be subject to taxes. They highlight that many restaurant workers rely heavily on tips for a significant portion of their income.
Current Policy
Under current law, cash tips over $20 per month are subject to federal income tax. Employers must report these tips to the Internal Revenue Service (IRS), and servers are responsible for paying taxes on them.
Estimated Impact
According to the Committee for a Responsible Federal Budget, exempting tips from taxation could reduce federal income tax revenue by approximately $5 billion annually.
Support and Opposition
The No Tax on Tips Act has garnered support from many in the restaurant industry, who believe it would provide relief to low-wage workers.
However, opponents argue that the exemption could create an unfair advantage for tipped workers over other low-wage earners and could potentially lead to higher menu prices.
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