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SHORT CHANGED – ENDING INCOME TAXES ON TIPS WILL NOT MAKE
SUBMINIMUM WAGES LIVABLE  
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One Fair Wage
July 22, 2024
One Fair Wage
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_ Senator Ted Cruz's "No Tax on Tips Act" leaves out 95% of low- and
moderate-Wage workers including 65% of tipped workers. _

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INTRODUCTION

In the midst of a post-pandemic affordability crisis, the minimum wage
in general and the the subminimum wage for tipped workers in
particular — and campaigns to end it — have been gaining attention
in recent months. So much so, that the Republican nominee for
president of the United States has proposed ending income taxes on
tips as a way to increase service workers’ incomes.1 In response,
U.S. Senator Ted Cruz drafted the ‘No Tax on Tips Act’ which would
end income taxes on tipped income, but would not end payroll taxes on
tips.2

The Center For American Progress found that Cruz’s bill “leaves
out more than 95 percent of low- and moderate-wage workers,” because
few workers in the overall U.S. workforce receive tips.3 Yet One Fair
Wage’s analysis of tipped restaurant worker data shows that even
among tipped workers, nearly two thirds (65 percent) would not benefit
from this proposal either as they or their household do not earn
enough money to pay income taxes. The subminimum wage for tipped
workers, still just $2.13 an hour federally, means that tipped
restaurant workers face among the lowest incomes of any workforce, the
highest rates of sexual harassment of any workforce, and the greatest
economic instability of any workforce.4 Even among the one-third of
tipped workers who would benefit from this tax relief, this tax relief
would be experienced once a year at tax time, and would not relieve
their need to pay rent and bills all year round. Exempting these
workers from taxes would do little for tipped restaurant workers,
while providing these workers with a full, livable minimum wage with
tips on top would significantly improve their economic stability and
workplace safety. The subminimum wage for tipped workers is a direct
legacy of slavery; after Emancipation, Black workers were locked into
no-wage and lowwage work.5 Employers in the hospitality sector hired
newly freed slaves for no wage, with the expectation that their income
would come from tips received from white patrons. In 1938, when the
first federal minimum wage was enacted, the law still allowed
employers to pay tipped workers as little as $0 an hour, arguing that
minimum wages could be obtained via tips.6 In 1966, worker advocates
secured a guaranteed base wage for tipped workers, but they were only
allowed to receive 50 percent of the overall minimum wage.7 In the
1990s, the National Restaurant Association lobbied and convinced
politicians to freeze the subminimum wage for tipped workers.8 As a
result, the subminimum wage for tipped workers has been capped at
$2.13 an hour for the last 30 years since 1991 — an increase of only
$2 over 150 years since Emancipation.

KEY FINDING

TIPPED RESTAURANT WORKER WAGES IN THE UNITED STATES DO NOT EARN ENOUGH
MONEY TO PAY TAXES

While the national median individual income in the United States is
$40,480, tipped restaurant workers median individual income is just 37
percent of the national median income, at only $15,198.9,10 High
earning tipped restaurant workers are nearly nonexistent, and over 95
percent of these workers earn less than $53,000 a year.11 The annual
income of tipped restaurant workers is so low that 46 percent of
tipped restaurant workers do not even earn $13,850 — the income
threshold for a single individual to pay federal income taxes.12 On
top of this 46 percent, One Fair Wage found that of workers making
above $13,850 a year, approximately 38 percent — or 20 percent of
all tipped restaurant workers — are in households that do not pay
income taxes because their combined income is too low.13,14 This means
that 66 percent of tipped restaurant workers would see no benefit from
ending income taxes on tips. When tipped workers’ wages are too low
to benefit from a tax exemption, the only real solution to their
current affordability crisis is to raise the minimum wage and end the
subminimum wage for tipped workers.

1 | US TIPPED RESTAURANT WORKERS’ WAGES ARE TOO LOW

Research has shown tipped workers earn among the lowest wages of any
workforce in the country. The Economic Policy Institute reported that
“tipped workers experience a poverty rate nearly twice that of other
workers,” and that tipped workers in subminimum wage states are more
likely to live in poverty than in fair wage states (states that pay at
least the full minimum wage with tips on top).15 While the national
median individual income in the United States is $40,480, tipped
restaurant workers median individual income is just 37 percent of the
national median income, at only $15,198.16,17 In fact, nearly 90
percent of tipped restaurant workers earn below the national median
income.18

› 80 PERCENT OF TIPPED RESTAURANT WORKERS IN THE UNITED STATES EARN
UNDER $30,781.

› 90 PERCENT OF TIPPED RESTAURANT WORKERS IN THE UNITED STATES EARN
UNDER $41,336.

› 95 PERCENT OF TIPPED RESTAURANT WORKERS IN THE UNITED STATES EARN
UNDER $52,608.19

Higher-income earners are almost nonexistent in this field, with a
mere 1.3 percent of these workers earning $80,000 a year or more. To
put this in perspective, only half of a percent – 1 out of every 200
tipped restaurant workers — earns $100,000 a year or more.20
Meanwhile, 18 percent of all individual income earners nationally earn
$100,000 a year or more – 36 times higher than the percentage of
tipped restaurant workers.21

2 | TIPPED WORKERS DO NOT EARN ENOUGH MONEY TO PAY TAXES

Under federal tax law, income thresholds, credits, and deductions
change the tax rate individuals and households pay. The income
threshold for a single individual to pay federal income taxes is
$13,850.22 The percentage of households that pay income taxes varies;
less than 7 percent of households earning $10,000 - $20,000 pay income
taxes, while 53 percent of households earning $40,000 - $50,000 pay
income taxes.23 With the annual income of tipped restaurant workers
being so low, 46 percent of tipped restaurant workers do not earn
enough money to pay income taxes based on their individual income
($13,850 or more).24,25 One Fair Wage analysis of household income for
tipped restaurant workers who reported personal income above $13,850
found that approximately 38 percent of those workers are in households
that do not earn enough to pay income taxes, or 20 percent of all
tipped restaurant workers.26,27 This means that in total, 66 percent
of tipped restaurant workers would see no benefit from ending income
taxes on tips.

CONCLUSION

While the campaign rhetoric around ending taxes on tips rings hallow
when looking at the need for real living wages, the Republican play
for working class, marginalized, and young voters by way of
highlighting the issues around tipped wages is very real. But the real
solution these groups are calling for is not the once-a-year tax
exemption on tips- it is living wages with tips on top all year round.
In November 2023, the Center for Information and Research on Civic
Learning and Engagement (CIRCLE) released polling of young people
18-34 showing that over half (53 percent) chose the cost of
living/inflation as their highest priority issue, followed by jobs
that pay a living wage (28 percent).28 Similarly, the Institute of
Politics at the Harvard Kennedy School of Government released its
latest Harvard Youth 4 Poll in April that found cost of living and
inflation were the highest polled concerns, with 64 percent of young
people 18-29 saying it was one of their three top concerns.29 The
concerns of young people about the economy are shared by people of
color and the LGBTQ community. MSNBC published the results of a poll
conducted by UnidosUS and Mi Familia Vota, who asked 3,037 Latinos to
pick the most important issues for Congress to address. Inflation and
the rising cost of living was the top concern for Latinos (54 percent)
and jobs and the economy came in second (44 percent).30 NBC News has
also reported on focus groups of Black voters who overwhelmingly
shared their concerns about the economy.31 In March, ABC News found
LGBTQ voters share these same concerns as young voters, Latino/a
voters, and Black voters, with members of this community also saying
their top concern is the economy.32 One Fair Wage has continuously
warned that large groups of voters, including youth voters, tipped
workers, communities of color, LGBTQ people, and working class
families are looking for leaders who will focus on improving economic
security in their communities. While the Republican nominee for
president would have no chance to woo voters with policies that short
change tipped workers, candidates who actually want to win should
address the real solution working people in the United States are
calling for: ensuring living wages for all who work.

ENDNOTES

1 Duehren, Andrew. No Taxes on Tips? A Trump Idea Gains Ground. New
York Times. July 18, 2024 [link removed].
com/2024/07/18/us/politics/trump-tips-taxes.html.

2 Duke, Brendan. Sen. Ted Cruz’s No Tax on Tips Act Does Little for
Low- and Moderate-Wage Workers But Opens Door to Tax Abuse by Wealthy.
Center for American Progress. July 17, 2024,
[link removed]…
[[link removed]].

3 Duke, Brendan. Sen. Ted Cruz’s No Tax on Tips Act Does Little for
Low- and Moderate-Wage Workers But Opens Door to Tax Abuse by Wealthy.
Center for American Progress. July 17, 2024,
[link removed]…
[[link removed]].

4 One Fair Wage. (2021, September). No Rights Low Wages No Service:
How Increased Violations of Workers’ Rights in 2021, Coupled with
High Harassment, and Low Wages and Tips, Have Pushed Workers to Leave
the Service Sector.
[link removed].

5 Jayaraman, S. (2021). One fair wage: Ending subminimum pay in
America. The New Press.

6 Jayaraman, S. (2021). One fair wage: Ending subminimum pay in
America. The New Press.

7 Segrave, Kerry. (1998). Tipping: An American Social History of
Gratuities. McFarland.

8 Jayaraman, S. (2021). One Fair Wage: Ending subminimum pay in
America. The New Press.

9 U.S. Census Bureau, Real Median Personal Income in the United States
[MEPAINUSA672N], retrieved from FRED, Federal Reserve Bank of St.
Louis; [link removed] MEPAINUSA672N, June 27,
2024.

10 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

11 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. https:// doi.org/10.18128/ D010.V12.0.

12 Internal Revenue Service. Check if you need to file a tax return.
June 27, 2024.
[link removed].

13 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

14 Statista Research Department. Share of households in the United
States that paid no individual income tax in 2022, by income level.
(July 5, 2024)
[link removed]…
[[link removed]].

15 Allegretto, S. et al. (July 2014). Twenty-Three Years and Still
Waiting for Change: Why It’s Time to Give Tipped Workers the Regular
Minimum Wage. Economic Policy Institute. https://
www.epi.org/publication/waiting-for-change-tipped-minimum-wage/
[[link removed]].

16 U.S. Census Bureau, Real Median Personal Income in the United
States [MEPAINUSA672N], retrieved from FRED, Federal Reserve Bank of
St. Louis; [link removed] MEPAINUSA672N, June 27,
2024.

17 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0

18 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

19 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

20 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

21 Griffin, Henley. What Percentage of Americans Make Over 100K?
Shocking Income Statistics. December 13, 2023,
[link removed]

22 Internal Revenue Service. Check if you need to file a tax return.
June 27, 2024.
[link removed]

23 Statista Research Department. Share of households in the United
States that paid no individual income tax in 2022, by income level.
(July 5, 2024)
[link removed]…
[[link removed]]

24 Internal Revenue Service. Check if you need to file a tax return.
June 27, 2024.
[link removed].

25 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

26 OFW analysis of American Community Survey data, 2017- 2022 5-Year
Sample. Steven Ruggles, Sarah Flood, Ronald Goeken, Megan Schouweiler
and Matthew Sobek. IPUMS USA: Version 12.0 [dataset]. Minneapolis, MN:
IPUMS, 2024. [link removed] D010.V12.0.

27 Statista Research Department. Share of households in the United
States that paid no individual income tax in 2022, by income level.
(July 5, 2024)
[link removed]…
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28 Peter de Guzman, Alberto Medina. Youth and the 2024 Election:
Likely to Vote and Ready to Drive Action on Key Political Issues.
Circle. (November 2023) [link removed]-
election-youth-poll

29 Institute of Politics, Harvard Kennedy. Spring 2024 Harvard Youth
Poll. April 2024
[link removed]

30 NBC News. Suzanne Gamboa. Large Latino poll finds cost of living
and economy top voters’ concerns. [link removed].
com/en-us/news/politics/large-latino-poll-finds-cost-ofliving-and-economy-top-voters-concerns/ar-AA1kJc9x

31 Ben Kamisar. Wavering Black voters: Biden is flawed — and Trump
is unacceptable. NBC News. February 2024
[link removed]…
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32 Kaleigh Rogers. LGBTQ+ voters look a lot like swing voters. ABC
News. March 2024
[link removed]…
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