Assume you’re explaining to a friend with a new job who doesn’t understand taxes or political pledges why President Donald Trump has proposed removing income taxes on tips.
President Donald Trump has promoted the “No Tax on Tips” promise since 2023, when he was still running for president. Essentially, it suggests that gratuities paid by service workers including waiters, bartenders, bellhops, valets, and others be exempt from federal income tax.
This means that if a server receives $100 in tips, they are not required to pay taxes on the money and can keep it altogether. Currently, several states retain a portion of such money in the form of taxes.
Why is Trump talking about this again?
On January 29, 2025, Trump reiterated this promise during a rally in Las Vegas, a city where tourism and tip-dependent jobs are vital.
In his speech, the president stated: “In the coming weeks, I will work with Congress to introduce a plan that reduces taxes for workers, families, and small companies while, most importantly, fulfilling my commitment. “We will make it for you with no tip taxes.”
He further stated that if you work as a waiter, bartender, valet, bellman, or even his caddy (the guy who carries the golf clubs), you will receive 100% of the tips, with no tax deductions.
How do tip taxes work today?
In dozens of jurisdictions, tips are now recognized an official portion of salary income, so they must be reported and taxed under federal law.
For example, if a waiter receives $500 in tips per month, the money is added to his base income, and he must pay taxes on the entire amount. This is true not only on the federal level, but also in several states, including California, Texas, New York, and Florida, where tips are subject to state taxes.
Trump cannot amend the tax code on his own, therefore it is unclear how he would accomplish such a change. He would need congressional backing to pass legislation changing the way tips are taxed.
Furthermore, elements of the 2017 tax bill (which he signed personally) are about to expire, thus opening the door to modifications to the tax system.
States where tips are taxed as of today
Although the proposal sounds appealing, some economists believe that raising the federal minimum wage for tipped workers would be a more effective solution.
The following states currently consider tips to be taxable wage income: California, Texas, New York, Florida, Illinois, Pennsylvania, Virginia, New Jersey, and Massachusetts.
