Why 'no tax on tips' may have limited benefits for California workers

"Under the provision, taxpayers who make less than $150,000 a year, or $300,000 if filing jointly, could deduct up to $25,000 in tips from their federal income taxes, regardless of whether they itemize their deductions. Among the nearly 70 occupations that qualify are restaurant servers, gig workers, barbers, cosmetologists and golf caddies. The deduction is effective starting this tax year and runs through 2028."

"Workers and experts who spoke with CalMatters about no tax on tips had more questions than answers, because income tax outcomes can vary significantly depending on people's circumstances. Are they single, married filing separately or married filing jointly? Do they have kids? Do they deduct mileage or other expenses? Experts also said the provision brings up issues of fairness: Some low-wage service workers will get deductions that workers with comparable wages in other industries won't get."

""I would be hard-pressed to think of a stupider tax policy that's become law," said Brian Galle, a law professor at UC Berkeley. Galle said the provision makes taxes even more complicated. He also said it could lead some employers to cut workers' pay "by the full amount of tax savings." Meanwhile, polls show consumers are tired of tipping, so they might stop doing so if they assume that all tipped workers will now be able to deduct their tips, Galle and other experts said."

A federal deduction now allows taxpayers earning under $150,000 (or $300,000 filing jointly) to deduct up to $25,000 in tips, regardless of itemizing. Nearly 70 occupations qualify, including servers, gig workers, barbers, cosmetologists and golf caddies. The deduction is effective this tax year through 2028, with public comments accepted until Oct. 22. Individual tax outcomes will vary by filing status, dependents and other deductions. The provision raises fairness concerns because similar-wage non-tipped workers receive no parallel deduction. Experts warn the rule could complicate taxes, prompt employer pay cuts, and reduce consumer tipping.

Read at The Mercury News