According to the U.S. Treasury Department, 90% of 2025 income tax filers who enjoyed the new (temporary) tax breaks on tips, made less than $100,000 last year.
In some cases, a lot less than $100,000, I imagine.
The people who depend on tips to help them pay their monthly rent are, like, waitresses and baristas and bell boys. I suspect very few of them earned $100,000 last year. Probably they were lucky if they earned $30,000 total, including tips.
This year, the average hourly wage for a waitress in the U.S. is $10.69. Not counting tips, her paid wages come to about $22,000 a year if she works 8-hour days, five days a week. Some of us, who may be short on culinary skills, depend heavily on waitresses to keep us fed, and some of us have no problem leaving a 20% tip.
If we all left a 20% tip, she might be making $30,000 a year. But some of us are scrooges.
Up until the passage of One Big Beautiful Bill in 2025, waitresses had to pay income tax on tips. But apparently, she can now deduct up to $25,000 from the taxes on her tips. That seems like a lot of tips, but of course we are talking here about a Big Beautiful Bill.
The IRS gives this official example of a bartender who earns $200,000 a year:
Bob is a bartender who reports $20,000 in tips to his employer during the 2025 tax year on Forms 4070 and reports $4,000 of unreported tips on Form 4137, line 4. Bob’s 2025 Form W-2 reports $200,000 in box 1 and $15,000 in box 7. Bob may use either the $15,000 in box 7 of the Form W-2, or the $20,000 of tips reported to Bob’s employer on Forms 4070 in determining the amount of qualified tips for tax year 2025. Regardless of the option chosen, Bob may also include the $4,000 of unreported tips from Form 4137, line 4 in determining the amount of qualified tips.
Republicans have been making a big deal of the targeted tax breaks as we watch the economy go down the tubes.
But I fear they may have made the employment landscape unfair.
I’m thinking specifically about the CEOs of major U.S. corporations, who hardly ever get tipped. Sure, they might get stock options and bonuses, and have use of the corporate jet, and be provided personal security protection. (Meta, for example, spent about $24 million last year providing security for CEO Mark Zuckerberg.)
But can we imagine — if a CEO ever did get tipped at, say, 20% — how much that would be?
Unfortunately, because of the language in the One Big Beautiful Bill, a typical corporate CEO will never be allowed to deduct the tax on his tips, because the deduction begins to phase out a $150,000 in net income.
The average S&P 500 CEO earned $18.9 million in total compensation in 2025. That’s 285 times what the median employee at the same company took home, according to the AFL-CIO’s Executive Paywatch report. It’s not clear how much of that CEO pay comes in the form of tips. That would be “taxable tips”, as I just explained.
To make up for the inability to deduct taxes on tips, however, the One Big Beautiful Bill lowered the overall income tax rate for CEOs. Which seems only fair.
In 2024, a CEO earning $18.9 million would have owed about $7.5 million in income tax. (Unless they have a clever accountant, in which case, who knows what they may have paid. Or not paid.)
For 2025, thanks to the OBBB, that CEO will owe only $7.0 million. A savings of $500,000. Unlike the ‘no tax on tips’ provision, this deduction does not phase out at $150,000 in household income.
In order to fund the ‘no tax on tips’ program, and the accompanying reduction in the top marginal rate for CEOs (which, as stated, is only fair) and all the other tax cuts for the very wealthy, the federal government is projected to go $4.5 trillion deeper in debt.
We cannot blame that entire additional debt on waitresses. Just some of it.
Underrated writer Louis Cannon grew up in the vast American West, although his ex-wife, given the slightest opportunity, will deny that he ever grew up at all. You can read more stories on his Substack account.