The federal income tax would probably be $0 or close to it for a lot of tipped employees, although at some high end restaurants & bars where full time employees are reporting all or most of their tips it might be sizable.
But there is the 6.2% Social Security tax and the 1.45% Medicare tax that employees pay. Employers kick in another 6.2% / 1.45%, so of course they have an incentive to have their employees under-report tips… it saves the restaurant money too!
The problem with not paying those taxes is then that income doesn’t go into their Social Security benefit calculation. For a credentialed actuary like me who waited tables a couple of years in college that would have been freaking fantastic. More spending money when I needed it the most, and those years aren’t going to be part of my highest 35 years of earnings that go into my benefit calculation anyway so it’s no skin off my back.
For a career waitress… Bad Idea Jeans. What is she going to live on in retirement?
The $2.13 an hour of actual wages they are paid annualizes out to a bit over $4,000 if they work 40 hours a week. That’s not even enough to earn their 4 credits… they’d only get 2 credits towards eligibility for Social Security.
And if those wages were all she had, that works out to a benefit of less than $4,000 a year. She needs to get credit for her tips to have a living Social Security benefit.
By contrast, an employee making exactly minimum wage for 35+ years would have an annual benefit of roughly $13,000. Still pretty modest, but a heckuva lot better than $4,000.
And people don’t really stay in minimum wage jobs forever. They at least progress to making $10-12 an hour, which is still a very modest income. If you had 35+ years of full time wages of $12/hour that equates to a benefit of over $16,000.
That’s a more realistic estimate. But the career waitress really will have a benefit under $4,000 if her tips are not part of her Social Security wages. And she’d have to work twice as long to have eligibility for benefits, including disability benefits, which would also be impossibly low.
There can also be state and local income taxes on tips. States and local governments do not have to operate the same way as the federal government, but there are often similarities.
Many will tax either the federal taxable wages* or the Medicare wages. If tips stopped appearing on W-2s, it would be nearly impossible for state or local governments to tax tips.
*ETA: With adjustments for stuff that doesn’t impact the lowest income workers, such as the taxation of federal and municipal bond interest.
On top of all Twig said… basically no fast food employee is tipped. I realize you probably just misspoke, but “no tax on tips” does nothing for every McDonald’s worker still making $7.25/hour.
Meanwhile I see that the 50th percentile of gross wages for tipped waitstaff (inclusive of estimated unreported tips) is about $17.56/hour with a 10th percentile of $8.94.
I’m not arguing that waitstaff are overpaid, but I don’t see the point of the proposal. What does it do for every housekeeper, every paramedic, every non-tipped food service employee? Nothing. For those tipped employees who made more than the mandatory minimum, it’s an excuse to pay them less hourly wage.
Well, that and I believe it would also shift the tax burden to individuals who now have to self-report income as tips. Social Security taxes would still have to get paid, and even if federal income tax is completely exempt it would still apply at the state level which means individuals have to pay their part and the employer’s part.
Bermuda is a close analogue to Virginia (seeing as how it was colonized by the London Company, and originally was part of Virginia).
Until sometime in the 20th century, Bermudians lived “in Bermuda” but had British citizenship.
(Today, they live “in Bermuda”, have Bermudian “belonger status”, are British nationals, but have “British Overseas Territories” citizenship.)
George Washington may have been a British citizen, but he did not live “in England”; he lived “in Virginia”.
(c.f. Scotland vs England. At the time you would have lived “in Scotland” or “in England”, but had British citizenship either way. Scotland != England, just as Virginia != England.)
I think the answer (at least in the sense you’re asking) is “no”.
However…
In US law, a “tipped employee” is someone who customarily receives $30/month in tips. However, many of the laws/rules regarding “tipped employees” are worded such that they would not apply to salaried employees.
Certain employers may have policies that prohibit accepting tipping (police departments being the most obvious example), and certain professional organizations deem members’ acceptance of tips to be unethical.
There are laws preventing management from taking tips intended for employees and things like that.
In general, when not related to taking tips intended for another, I know of no laws forbidding tips. I’m sure a pile of such laws exist such as for a government contractor or other specific roles, but in terms of giving a roofer a $10,000 tip, I am unaware of any restrictions.
Yes completely agree. For example it was a big frustration for Washington that he was not allowed to become an officer in the British Army, but they looked down on him because of where he was born.
I’m not sure that’s entirely accurate. There seem to be a lot of people who bounce between minimum wage jobs and a few dollars more before falling back again.
It was meaningful at the time. The colonists thought of themselves as proper subjects of the king, but in practice they were second class citizens, for example GW himself was deeply frustrated by being treated as such by the British military.
If the British had treated the colonists as equals then we’d probably all be Canadians right now.
One of the most interesting classes I took in college was a graduate level history class on the American Revolution taught by a professor visiting from England.
One of the “a-ha!” moments I had from the class was that coming out of the Seven Years War, Great Britain had generated a huge debt. While the cost of defending the North American colonies (and conquering the French colonies) generated only a portion of the total debt, Parliament was aware that the colonial subjects were notoriously unwilling to contribute to their defense.
Parliament’s desire to address the imbalance was a significant factor leading to the sequence of events that set of the American Revolution.
From the Brits’ perspective – the colonials may have wanted to be treated as equals, but they weren’t willing to accept an equal share of the burden of being British subjects.
Completely agree, especially since it was none other than GW who started the war in the first place. I think it’s interesting to add though that there was a lively debate in British parliament about it, with many MPs arguing that the colonists’ demands were in line with British thinking, etc., but ultimately the hardliners won out.
I think it’s also amazing how unsuccessful the Americans were militarily. Basically doing a dreadful job defending NYC, then a mediocre job retreating and things looked quite dire until Gates/Arnold win a big victory at just the right time to get the French involved.
Don’t get me wrong it was a big deal that the continental army managed to stay in the field to extend the war, but it was incredibly fortuitous to get a victory at just the right moment and then have the French supply the necessary firepower to make independence realistic. To their own monarchy’s demise (two for one revolution in a way).